

[Federal Register: November 1, 2006 (Volume 71, Number 211)]
[Rules and Regulations]               
[Page 64341-64375]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01no06-20]                         


[[Page 64341]]

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Part II





Department of Energy





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Federal Energy Regulatory Commission



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18 CFR Part 292



New PURPA Section 210(m) Regulations Applicable to Small Power 
Production and Cogeneration Facilities; Final Rule


[[Page 64342]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 292

[Docket No. RM06-10-000; Order No. 688]

 
New PURPA Section 210(m) Regulations Applicable to Small Power 
Production and Cogeneration Facilities

Issued October 20, 2006.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Final rule.

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SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
amending its regulations governing small power production and 
cogeneration in response to section 1253 of the Energy Policy Act of 
2005 (EPAct 2005), which added section 210(m) to the Public Utility 
Regulatory Policies Act of 1978 (PURPA).

DATES: Effective Date: The rule will become effective January 2, 2007.

FOR FURTHER INFORMATION CONTACT: Deborah Wyrick (Technical 
Information), Office of Energy Markets and Reliability, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426, 
(202) 502-6113. Marka Shaw (Technical Information), Office of Energy 
Markets and Reliability, Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426, (202) 502-8641. Samuel 
Higginbottom (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-8561. Eric Winterbauer (Legal 
Information), Office of the General Counsel, Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426, (202) 502-
8329.

SUPLEMENTARY INFORMATION:
    Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. 
Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

I. Introduction

    1. On August 8, 2005, the Energy Policy Act of 2005 (EPAct 2005)\1\ 
was signed into law. Section 1253(a) of EPAct 2005 adds section 210(m) 
to the Public Utility Regulatory Policies Act of 1978 (PURPA)\2\ which 
provides, among other things, for termination of the requirement that 
an electric utility enter into a new contract or obligation to purchase 
electric energy from qualifying cogeneration facilities and qualifying 
small power production facilities (QFs) if the Federal Energy 
Regulatory Commission (Commission) finds that the QF has 
nondiscriminatory access to one of three categories of markets defined 
in section 210(m)(1)(A), (B) or (C). Thus, to relieve an electric 
utility of its mandatory purchase obligation under PURPA, the 
Commission must identify which, if any, markets meet the criteria 
contained in 210(m)(1)(A), (B) or (C), and, if such markets are 
identified, it must determine whether QFs have nondiscriminatory access 
to those markets.
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    \1\ Pub. L. 109-58, 1253, 119 Stat. 594 (2005).
    \2\ 16 U.S.C. 824a-3 (2000).
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    2. On January 19, 2006, the Commission issued a notice of proposed 
rulemaking (NOPR) proposing regulations to implement the provisions of 
the new PURPA section 210(m) and proposing to terminate the requirement 
that an electric utility enter into a new contract or obligation to 
purchase electric energy from QFs if the electric utility is a member 
of Midwest Independent Transmission System Operator, Inc. (Midwest 
ISO), PJM Interconnection, L.L.C. (PJM), ISO New England, Inc. (ISO-
NE), or New York Independent System Operator (NYISO). After considering 
industry comments on the NOPR, the Commission issues this Final Rule 
amending the Commission's regulations to implement the requirements in 
section 210(m). We believe the regulations adopted in the Final Rule 
reflect Congress's intent to differentiate between three types of 
market structures, each of which presents differing factors relevant to 
our determination of whether QFs have access to a sufficiently 
competitive market to support elimination of the purchase requirement. 
Our Final Rule also recognizes the special circumstances faced by small 
QFs and, accordingly, applies a different test for this class of QFs. 
In addition to a presumption in favor of small QFs, the rule also 
recognizes that some QFs, irrespective of size, may not have the 
ability to sell in certain markets because of operational 
characteristics or other constraints.
    3. The Commission received extensive comments on its NOPR.\3\ At 
one extreme are commenters who argue that the Commission may not 
address the mandatory purchase requirement issues by rulemaking and 
that competitive capacity and energy markets do not yet exist to 
support a generic finding that QFs in the four regional transmission 
organization/independent system operator (RTO/ISO) regions should lose 
the right to require electric utilities to purchase their electric 
output. At the other extreme are those who argue that the Commission, 
with limited exceptions, should eliminate the mandatory purchase 
requirement altogether.
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    \3\ Attached as Appendix A is a list of all commenters and the 
abbreviations that are used throughout the order to refer to the 
commenters.
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    4. We do not believe that either extreme reflects the letter or the 
spirit of section 210(m). The QFs who advocate that we may not or 
should not act at all by rulemaking fail to recognize that the 
Commission has broad latitude to act by either rulemaking or 
adjudication. Nowhere does section 210(m) preclude the Commission from 
acting by rulemaking. Moreover, where, as here, recurring and common 
issues of fact arise, acting by rulemaking is not only permissible, but 
provides more effective notice to and opportunity for participation by 
all affected parties. To some extent, generic findings about markets 
are inevitable, either by rulemaking or in the first utility specific 
filing concerning a specific market. Making generic findings by 
rulemaking provides affected entities, including QFs, a better 
opportunity to participate in the generic proceeding as well as the 
individual proceedings that will follow. Finally, the substantive 
arguments of these entities that underlie their procedural objections 
fail to recognize that Congress, in enacting section 210(m), explicitly 
recognized three different market structures and required the 
Commission to respect the differences in those markets when making 
determinations as to whether to rescind the purchase obligation. In 
essence, they are rearguing the very debates that Congress settled in 
adopting section 210(m).
    5. We also do not agree with the position of utilities that 
advocate we should terminate the purchase obligation in summary fashion 
in this rulemaking. Although our action today respects the choice of 
Congress in establishing different tests for different market 
structures, we do not, in this rulemaking, terminate the purchase 
obligation of any utility. In this respect, we modify our approach in 
the NOPR. In contrast to the NOPR, in this Final Rule we establish only 
rebuttable presumptions that the purchase obligation should be 
eliminated with respect to certain QFs, not final determinations.
    6. In sum, this Final Rule appropriately reflects Congressional 
intent in enacting section 210(m). It does not, as some commenters 
suggest, ignore the fact that Congress did not repeal PURPA section 
210(a)'s directive

[[Page 64343]]

that the Commission prescribe, and from time to time revise, such rules 
as it determines necessary to encourage cogeneration and small power 
production. Rather, it recognizes the fundamental change which Congress 
made to the statutory construct when it determined that ``no electric 
utility shall be required * * * to purchase electric energy from'' a QF 
if certain findings are made with respect to various markets. Our 
action properly implements Congressional intent in the new section 
210(m) that the three different market structures present different 
considerations in determining whether to relieve utilities of the 
purchase obligation. Our action also properly recognizes that smaller 
QFs can face more significant challenges than larger QFs in accessing 
competitive wholesale markets. Our action continues to support QF 
development by ensuring that, where the requirements of section 210(m) 
are met, QF development will, as determined by Congress, be stimulated 
by market forces, and that where those requirements have not been met, 
QF development will continue to be stimulated as it is today through 
the mandatory purchase obligation. Finally, nothing in this Final Rule 
affects any electric utility's resource adequacy obligations, 
compliance with the Electric Reliability Organization's reliability 
standards, prudent utility practice to build or purchase reliable power 
at the most economical price, or resource portfolio obligations under 
state law including obligations to purchase renewable energy.

II. Executive Summary

    7. This Final Rule amends the Commission's regulations in part 292 
\4\ (pertaining to electric utilities' requirement to purchase electric 
energy from or sell electric energy to a QF) to implement section 1253 
of the EPAct 2005. As relevant here, section 1253 added a new section 
210(m) to PURPA, which:
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    \4\ 18 CFR part 292, subpart C, Arrangements Between Electric 
Utilities and Qualifying Cogeneration and Small Power Production 
Facilities Under section 210 of the Public Utility Regulatory 
Policies Act of 1978.
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    A. Provides for the termination of the requirement that an electric 
utility enter into new contracts or obligations to purchase electric 
energy from a QF, after appropriate findings by the Commission;
    B. Preserves existing contracts and obligations to purchase 
electric energy or capacity from or to sell electric energy or capacity 
to a QF;
    C. Provides for the reinstatement of the requirement to purchase 
electric energy from a QF, upon a showing that the conditions for 
terminating the requirement are no longer met; and
    D. Provides for the termination of the requirement that an electric 
utility enter into new contracts to sell electric energy to QFs, after 
appropriate findings by the Commission.
    The Commission is amending its Part 292 regulations to address the 
above section 210(m) provisions and also to provide a process for 
applying for the reinstatement of the requirement to sell electric 
energy to QFs upon a showing that the conditions for the removal of 
that requirement are no longer met.

A. Termination of the Mandatory Purchase Requirement That an Electric 
Utility Enter Into a New Contract or Obligation To Purchase Electric 
Energy From QFs

    8. This Final Rule promulgates regulations that set forth the 
process by which electric utilities may apply to be relieved of the 
requirement that they enter into new contracts or obligations for the 
purchase of electric energy from QFs after August 8, 2005. New Sec.  
292.309 of the Commission's regulations describes the findings that the 
Commission must make to justify relieving an electric utility's 
obligation to enter into new QF purchase contracts. If the Commission 
finds that the QF has nondiscriminatory access to one of three 
wholesale markets described in the statute, the requirement that the 
electric utility enter into new contracts or obligations is terminated. 
These three wholesale markets, set forth in the statute in section 
210(m)(1), and incorporated in the new Commission regulations at Sec.  
292.309, are:

    (A)(i) Independently administered, auction-based day ahead and 
real time wholesale markets for the sale of electric energy; and 
(ii) wholesale markets for long-term sales of capacity and electric 
energy; or
    (B)(i) Transmission and interconnection services that are 
provided by a Commission-approved regional transmission entity and 
administered pursuant to an open access transmission tariff that 
affords nondiscriminatory treatment to all customers; and (ii) 
competitive wholesale markets that provide a meaningful opportunity 
to sell capacity, including long-term and short-term sales, and 
electric energy, including long-term, short-term and real-time 
sales, to buyers other than the utility to which the qualifying 
facility is interconnected. In determining whether a meaningful 
opportunity to sell exists, the Commission shall consider, among 
other factors, evidence of transactions within the relevant market; 
or
    (C) Wholesale markets for the sale of capacity and electric 
energy that are, at a minimum, of comparable competitive quality as 
markets described in subparagraphs (A) and (B).

    We interpret section 210(m)(1) to require the Commission to 
eliminate the purchase obligation in markets which meet the criteria of 
section 210(m)(1)(A), (B) or (C) if QFs have nondiscriminatory access 
to such markets. These three wholesale markets are characterized in 
this rule in short-hand terms as ``Day 2'' markets (auction based day-
ahead and real-time markets), ``Day 1'' markets (auction based real-
time markets but not auction based day-ahead markets), and comparable 
markets, respectively.\5\ The Final Rule finds that the Midwest ISO, 
PJM, ISO-NE, and NYISO all meet the criteria of section 210(m)(1)(A). 
These RTOs are independently administered and offer auction-based day 
ahead and real time wholesale markets for the sale of electric energy; 
and within the regions represented by these RTOs there is 
nondiscriminatory access to wholesale markets for long-term sales of 
capacity and electric energy. Therefore, except for the rebuttable 
presumptions set forth below, the member electric utilities of these 
four RTO/ISOs will be eligible for relief from the requirement to enter 
into new contracts for the purchase of QF electric energy.
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    \5\ Reference to ``Day 2'' and ``Day 1'' and the corresponding 
parenthetical are meant to be descriptive and thus are not a 
recitation of the elements of section 210(m)(1)(A) or (B).
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    9. The Final Rule creates three rebuttable presumptions:
    (A) For all three of the above markets, with the exception of the 
20 megawatt (MW) presumption discussed next, the Final Rule finds that 
the existence of an open access transmission tariff (OATT), or a 
reciprocity tariff filed by a non-jurisdictional utility, pursuant to 
the Commission's open access regulations,\6\ creates a rebuttable 
presumption, under section 210(m)(1), that QFs have ``nondiscriminatory 
access to'' the relevant wholesale markets.\7\
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    \6\ 18 CFR 35.28(e). An OATT provides interconnection as well as 
transmission services on a nondiscriminatory basis.
    \7\ To the extent that a QF raises issues about the adequacy of 
an electric utility's implementation of an OATT, such issues are 
more properly addressed in a complaint proceeding and will not be 
considered in the context of petitions for the termination of 
mandatory purchase requirements. However, a QF may raise other 
issues, such as operational characteristics and transmission 
limitations, to attempt to rebut the presumption of market access 
when it files a response to an application submitted pursuant to 
section 210(m)(3) of PURPA and section 292.310 of our regulations.
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    (B) For all three of the above markets, the Final Rule establishes 
a rebuttable presumption that QFs with a net capacity no greater than 
20 MW, do not have nondiscriminatory access to

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wholesale markets.\8\ Unless an electric utility seeking the right to 
terminate its requirement to purchase small QF power specifically 
rebuts this small QF presumption, and that electric utility's request 
is granted by the Commission, a small QF would be eligible to require 
the electric utility to purchase its electric energy.
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    \8\ Herein referred to as small QFs.
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    (C) The Final Rule finds that the four RTO/ISOs with ``Day 2'' 
markets, i.e., the Midwest ISO, PJM, ISO-NE, and NYISO, qualify as 
markets under section 210(m)(1)(A) and establishes a rebuttable 
presumption that these organizations provide large QFs (above 20 MWs 
net capacity) interconnected with member electric utilities with 
nondiscriminatory access to the ``Day 2'' wholesale markets set forth 
in section 210(m)(1)(A). An electric utility member of one of these 
four RTO filing for relief from the requirement to purchase will need 
to refer to this rebuttable presumption in the Final Rule as part of 
its application. When it files an application for relief from the 
purchase requirement it must also submit certain information, including 
information about transmission constraints within its service 
territory, in order to give potentially affected QFs information that 
may be useful in rebutting the presumption that they have access to all 
aspects of the applicable ``Day 2'' markets.\9\ A QF above 20 MWs net 
capacity may rebut the presumption of nondiscriminatory access by 
showing that it in fact lacks access.
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    \9\ The electric utility would have to make additional showings 
if it wished to rebut the presumption that small QFs do not have 
nondiscriminatory access to its region's ``Day 2'' wholesale 
markets.
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    10. The rule does not find that any markets meet the statutory 
criteria at this time other than the four listed RTO/ISOs (Midwest ISO, 
PJM, ISO-NE, and NYISO) and the Electric Reliability Council of Texas 
(ERCOT) (discussed below). There will be a rebuttable presumption that 
QFs above 20 MWs net capacity have nondiscriminatory access to these 
markets if they are eligible for service under a Commission-approved 
OATT or Commission-filed reciprocity tariff.
    11. With respect to the California Independent System Operator 
(CAISO), and the Southwest Power Pool (SPP), which have only ``Day 1'' 
markets, it would be premature to find now that the CAISO and SPP would 
meet the criteria of section 210(m)(1)(A) once their ongoing market 
redesigns become effective. However, we find that: the CAISO and SPP 
meet the section 210(m)(1)(B)(i) criterion because they are Commission-
approved regional transmission entities that provide transmission and 
interconnection services pursuant to open access transmission tariffs 
that provide nondiscriminatory treatment to all customers. A member 
electric utility of the CAISO or SPP may rely on this finding in its 
application to be relieved of the obligation to enter into new 
contracts to purchase QF electric energy, but must make all the other 
showings required under section 210(m)(1)(B) before its request may be 
granted.
    12. The Final Rule finds that ERCOT meets the criteria of section 
210(m)(1)(C). ERCOT offers wholesale markets for the sale of capacity 
and electric energy that are of comparable competitive quality as the 
markets described in sections 210(m)(1)(A) and (C). Therefore, except 
for the rebuttable presumptions set forth herein, the member electric 
utilities of ERCOT will be eligible for relief from the requirement to 
enter into new contracts for the purchase of QF electric energy.
    13. New Sec.  292.310 of the Commission's regulations sets forth 
the filing requirements for an application by an electric utility 
seeking to terminate its requirement to enter into new purchase 
contracts with QFs. Among other things, the regulations require the 
electric utility to list the names and addresses of all potentially 
affected QFs, existing or under development. After notice and comment, 
the Commission will issue an order making a final determination within 
90 days of the application, as required by section 210(m)(3).

B. Preservation of Existing Contracts

    14. The Final Rule preserves the rights or remedies of any party 
under existing contracts or obligations, in effect or pending approval 
before the appropriate state regulatory authority or non-regulated 
electric utility on or before August 8, 2005, to purchase electric 
energy from or to sell electric energy to a QF. This provision is 
stated in the new Sec.  292.314 of the Commission's regulations. The 
Final Rule defines the term ``obligations'' broadly to encompass any 
legally enforceable obligation established through a state's 
implementation of PURPA.

C. Reinstatement of the Mandatory Purchase Requirement

    15. The Final Rule also sets forth a process by which a QF may seek 
the reinstatement of the requirement to purchase electric energy, by 
showing that the conditions necessary for the removal of the 
requirement to purchase are no longer met. After notice, including 
notice to the affected utilities, and comment, the Commission will 
issue an order within 90 days of the application. This process is set 
forth in the new Sec.  292.311 of the Commission's regulations. A QF's 
request may be specific (and limited) to itself alone, generic for the 
entire service territory of an electric utility, or regional in scope. 
The Commission will address the merits of each request as warranted by 
the circumstances presented in each case.

D. Termination of the Requirement To Sell Electric Energy to QFs

    16. The Final Rule provides for applications to remove the 
requirement to enter into new contracts to sell electric energy to QFs. 
The statute provides that if the Commission finds that competing retail 
electric suppliers are willing and able to sell and deliver electric 
energy to a QF, and the electric utility is not required by state law 
to sell electric energy in its service territory, the requirement to 
sell should be terminated. The new Sec.  292.312 of the Commission's 
regulations describes this process. The Final Rule makes no findings or 
presumptions with respect to an electric utility's obligation to sell 
electric energy to QFs.

E. Reinstatement of the Requirement To Sell Electric Energy to QFs

    17. Finally, the Final Rule provides for applications to reinstate 
the requirement of an electric utility to sell electric energy to QFs, 
by showing that the conditions necessary for the removal of the 
requirement to sell are no longer met. After notice and comment, the 
Commission will issue an order within 90 days if the required showing 
is made. Applications for reinstatement are addressed in the new Sec.  
292.313 of the Commission's regulations.

F. Recovery of Prudently Incurred Costs Relating to QF Power Purchases

    18. The Final Rule does not adopt new regulations implementing 
section 210(m)(7), regarding an electric utility's recovery of 
prudently incurred costs relating to purchases of electricity from QFs.

III. Background

A. History of Section 210 of PURPA

    19. When Congress enacted section 210 of PURPA, it required the 
Commission to prescribe such rules as the Commission determined 
necessary to encourage cogeneration and small power production, 
including rules requiring electric utilities to offer to purchase 
electric energy from and sell

[[Page 64345]]

electric energy to QFs. Additionally, section 210 of PURPA authorized 
the Commission to exempt QFs from certain federal and state laws and 
regulations if necessary to encourage cogeneration and small power 
production.
    20. A cogeneration facility is defined in the Federal Power Act 
(FPA) \10\ as a facility which produces electric energy and steam or 
forms of useful energy (such as heat) which are used for industrial, 
commercial, heating, or cooling purposes.\11\ Thus, cogeneration 
facilities simultaneously produce two forms of useful energy, namely 
electric energy and heat. Cogeneration facilities can use significantly 
less fuel to produce electric energy and steam (or other forms of 
energy) than would be needed to produce the two separately.
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    \10\ 16 U.S.C. 824 et seq.
    \11\ Id. 796(18).
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    21. Small power production facilities, as defined in the FPA, use 
biomass, waste, or renewable resources, including wind, solar energy 
and water, to produce electric energy and have a power production 
capacity which, together with any other facilities located at the same 
site, is not greater than 80 megawatts.\12\ Reliance on these sources 
of energy can reduce the need to consume fossil fuels to generate 
electric power.
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    \12\ Id. 796(17)(A)(i)-(ii).
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    22. Prior to the enactment of PURPA, a cogenerator or small power 
producer seeking to establish interconnected operation with a utility 
faced three major obstacles. First, utilities were not generally 
willing to purchase this electric output or were not willing to pay an 
appropriate rate for that output. Second, utilities generally charged 
discriminatorily high rates for back-up service to cogenerators and 
small power producers. Third, a cogenerator or small power producer 
which provided electric energy to a utility's grid ran the risk of 
being considered a public utility and thus being subjected to extensive 
state and federal regulation.
    23. Section 210 of PURPA was designed to remove these obstacles. 
Each electric utility is required under section 210 to offer to 
purchase available electric energy from cogeneration and small power 
production facilities which obtain qualifying status. The rates for 
such purchases from QFs must be just and reasonable to the ratepayers 
of the utility, in the public interest, and must not discriminate 
against cogenerators or small power producers. Rates also must not 
exceed the incremental cost to the electric utility of alternative 
electric energy (also known as the electric utility's ``avoided 
costs''). Section 210 also requires electric utilities to provide 
electric energy to QFs at rates which are just and reasonable, in the 
public interest, and which do not discriminate against cogenerators and 
small power producers. Rates for the purchase of energy from and the 
sale of energy to a QF are set by the appropriate state regulatory 
authority or non-regulated utility pursuant to the Commission's 
regulations, 18 CFR 292.301-308 (2006).
    24. Since Congress enacted PURPA, electric utilities have 
complained that their requirement to purchase from and sell to QFs, as 
implemented by the Commission in 18 CFR 292.303(a)-(b), was not 
economically beneficial and that they were purchasing energy they did 
not need and selling energy they did not want to sell. In 1995, the 
Commission clarified that determinations of the avoided-cost rate must 
take into account all alternative sources including third-party 
suppliers and an electric utility does not pay for electric energy it 
does not need.\13\ In the past decade, with the development of exempt 
wholesale generators (EWGs) introduced by the Energy Policy Act of 
1992,\14\ the implementation of open access transmission via Order No. 
888, the advent of ISOs and RTOs and organized markets, the 
Commission's new interconnection requirements, and increasing 
competition in wholesale electric markets as well as some retail 
electric markets, Congress has debated whether to repeal PURPA 
altogether, or to revise it. The result is new section 210(m), which is 
the subject of this rulemaking, and new section 210(n), which was 
addressed in Docket No. RM05-36-000.\15\
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    \13\ Southern California Edison Company and San Diego Gas & 
Electric Company, 70 FERC ] 61,215 at 61,677-78, reconsideration 
denied, 71 FERC ] 61,269 at 62,078 (1995) (finding that the 
determination of avoided cost must take into account ``all 
sources'').
    \14\ Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 
2776, (1993) (EPAct 1992). EPAct 1992 added a new section 32 to the 
Public Utility Holding Company Act of 1935 (PUHCA) to permit a 
category of sellers called EWGs to be exempt from PUHCA.
    \15\ Revised Regulations Governing Small Power Production and 
Cogeneration Facilities, Order No. 671, 71 FR 7852 (Feb. 15, 2006), 
FERC Stats. & Regs. ] 31,203 (2006), order on reh'g, Order No. 671-
A, 71 FR 30585 (May 30, 2006), FERC Stats. & Regs. ] 31,219 (2006).
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B. New Section 210(m)

    25. Section 210(m) of PURPA is titled ``Termination of Mandatory 
Purchase and Sale Requirements.'' The section revises the rights and 
obligations between electric utilities and QFs. Section 210(m)(1) 
requires the Commission to terminate the requirement of an electric 
utility to enter into a new contract or obligation with the QF if it 
finds that a QF has nondiscriminatory access to a market described in 
section 210(m)(1)(A), (B) or (C). Section 210(m)(2) states that after 
the date of enactment, no utility will be required to enter into a 
contract to purchase from or sell to a new cogeneration facility, 
unless the facility meets the criteria for new cogeneration facilities 
established by the Commission in implementing section 210(n) of PURPA. 
Section 210(m)(3) provides that an electric utility may file ``an 
application for relief from the mandatory purchase obligation'' on a 
service territory-wide basis and provides that the Commission must make 
a final determination on such an application within 90 days of the 
application. Section 210(m)(4) provides that a QF, a state agency, or 
other affected person may apply for an order reinstating the electric 
utility's ``obligation to purchase electric energy under this section'' 
upon a change in the market. Section 210(m)(5) provides for the 
termination of the requirement that an electric utility enter into a 
new contract or obligation to sell electric energy to a QF upon a 
finding that specified competitive conditions exist. Section 210(m)(6) 
provides that nothing in section 210(m) affects the rights or remedies 
of any party under any contract or obligation in effect or pending 
approval before the appropriate state regulatory authority or 
nonregulated utility on the date of enactment of section 210(m). And 
finally, section 210(m)(7) provides that the Commission shall issue and 
enforce such regulations as are necessary to ensure that an electric 
utility that purchases electric energy or capacity from a QF in 
accordance with a legally enforceable obligation entered into or 
imposed under section 210 of PURPA recovers all prudently incurred 
costs associated with the purchase.

C. NOPR

    26. On January 19, 2006, the Commission issued a NOPR containing 
its proposal to implement section 210(m) of PURPA. Generally, the 
Commission proposed to incorporate the language of section 210(m) in 
its regulations. While section 210(m) permits electric utilities to 
file applications for relief from the mandatory purchase requirement, 
and requires the Commission to act on such applications within 90 days, 
the Commission determined in the NOPR that it is appropriate to act 
generically as much as possible. Specifically, section 210(m)(1)(A) is 
most suitable for

[[Page 64346]]

such a generic implementation and the Commission proposed to make 
generic findings that certain markets meet the section 210(m)(1)(A) 
criteria. The NOPR concluded that the most reasonable interpretation of 
section 210(m)(1)(A) is that it was crafted to apply to regions in 
which ISOs and RTOs administer auction-based day ahead and real time 
wholesale markets for the sale of electric energy; and wholesale 
markets for long-term sales of capacity and electric energy are that 
these are available to participants/QFs in these markets.\16\ The 
Commission proposed in the NOPR that it would make a generic finding 
that the Midwest ISO, PJM, ISO-NE, and NYISO provide markets that meet 
the requirements of section 210(m)(1)(A) and therefore utilities that 
are members of those ISOs or RTOs meet the criteria for relieving those 
electric utilities of the requirement to enter into new contracts or 
obligations with QFs.\17\ Because the Commission proposed to make a 
generic finding with respect to 210(m)(1)(A), the Commission proposed 
that the electric utilities that are members of these four RTO/ISOs 
submit a compliance filing instead of filing applications for relief of 
the purchase requirement pursuant to 210(m)(3). In the compliance 
filing, the electric utility would demonstrate: (1) Membership in the 
RTO/ISO; (2) that the Commission has made a final finding that the RTO/
ISO it is a member of provides nondiscriminatory access to a section 
210(m)(1)(A) market; (3) a list of all potentially affected QFs; and 
(4) the QFs have the rights to request service under the OATT.\18\
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    \16\ NOPR at P 14.
    \17\ Id. at P 22-28.
    \18\ Id. at P 40. We note that, since the time comments were 
filed in this proceeding, the Commission has issued a NOPR proposing 
amendments to the OATT. Preventing Undue Discrimination and 
Preference in Transmission Service, 71 FR 32636 (2006), FERC Stats. 
& Regs. ] 32,603 (2006).
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    27. The Commission concluded that QFs have nondiscriminatory access 
to transmission and interconnection if they have access to utilities 
providing service under an Order No. 888 OATT (or to utilities 
providing service under a Commission-accepted reciprocity tariff) and 
interconnection services pursuant to the Commission's interconnection 
rules.\19\ The Commission also proposed, however, that there be a 
rebuttable presumption that a utility provides nondiscriminatory access 
if it has an open access transmission tariff in compliance with our pro 
forma OATT (or a Commission-approved reciprocity tariff) and that QFs 
or any other affected party should be allowed to rebut that 
presumption, for example, by providing specific and credible evidence 
that the QF does not have nondiscriminatory access to wholesale 
markets.\20\ The Commission noted that improper implementation of an 
OATT is more properly the subject of a complaint.
---------------------------------------------------------------------------

    \19\ Id. at P 20.
    \20\ Id. at P 31.
---------------------------------------------------------------------------

    28. Further, the Commission proposed in the NOPR that other 
markets, i.e., both non-auction-based markets and non-RTO/ISO markets 
described in section 210(m)(1)(B) and (C), would not be addressed 
generically in this rulemaking but would be addressed on a case-by-case 
basis in response to applications filed pursuant to the Commission's 
implementation of section 210(m)(3) of PURPA, i.e., pursuant to the 
proposed Sec.  292.310 of the Commission's regulations.\21\ The 
Commission proposed that subsequent changes to market conditions in all 
markets, i.e., markets described subparagraphs (A), (B) and (C) also 
would be handled on a case-by-case basis as well. Applications for 
termination of the requirement to enter into new contracts or 
obligations to purchase from QFs in markets described in subparagraphs 
(B) and (C) would be addressed pursuant to the proposed Sec.  292.310 
of the Commission's regulations. An application to reinstate the 
requirement that a utility enter in the new contracts or obligations to 
purchase from QFs, alleging subsequent changes to market conditions, 
would be addressed pursuant to the proposed Sec.  292.311 of the 
Commission's regulations. The Commission noted that it must make a 
finding regarding an application for relief of the purchase requirement 
and that the finding must be made within 90 days of the date of such 
application. The Commission stated that it expected an application for 
relief to be fully supported by documentation upon which the required 
finding can be made.\22\
---------------------------------------------------------------------------

    \21\ Id. at P 29-30.
    \22\ The Commission interprets the 90-day period to begin upon 
receipt of a completed application.
---------------------------------------------------------------------------

    29. Of the approximately 2,000 pages of comments the Commission has 
received to its NOPR, a large portion of the comments focused on the 
standards applicable to utilities within the ``Day 2'' RTO/ISOs and the 
procedures for utilities within ``Day 2'' markets to claim relief from 
the purchase requirement. Based on careful consideration of the 
comments submitted in response to the NOPR, the Commission adopts a 
Final Rule that makes certain modifications and clarifications to the 
approach in the NOPR.

IV. Discussion

A. Section 210(m)(1)

    30. The new PURPA section 210(m)(1) amends the statutory 
requirement that electric utilities purchase electric energy from QFs 
and states that:

* * * No electric utility shall be required to enter into a new 
contract or obligation to purchase electric energy from a qualifying 
cogeneration facility or a qualifying small power production 
facility under this section if the Commission finds that the 
qualifying cogeneration facility or qualifying small power 
production facility has nondiscriminatory access to--
(A)(i) Independently administered, auction-based day ahead and real 
time wholesale markets for the sale of electric energy; and (ii) 
wholesale markets for long-term sales of capacity and electric 
energy; or
(B)(i) Transmission and interconnection services that are provided 
by a Commission-approved regional transmission entity and 
administered pursuant to an open access transmission tariff that 
affords nondiscriminatory treatment to all customers; and (ii) 
competitive wholesale markets that provide a meaningful opportunity 
to sell capacity, including long-term and short-term sales, and 
electric energy, including long-term, short-term and real-time 
sales, to buyers other than the utility to which the qualifying 
facility is interconnected. In determining whether a meaningful 
opportunity to sell exists, the Commission shall consider, among 
other factors, evidence of transactions within the relevant market; 
or
(C) Wholesale markets for the sale of capacity and electric energy 
that are, at a minimum, of comparable competitive quality as markets 
described in subparagraphs (A) and (B).

1. Three Standards for Relief
a. NOPR
    31. Section 210(m)(1) defines under what conditions the Commission 
must relieve an electric utility of the obligation to enter into a new 
contract or obligation to purchase electric energy from a QF. 
Essentially, section 210(m)(1) establishes three different standards 
for relief from the purchase requirement depending on whether: (1) 
Electric utilities are members of ``Day 2'' RTO/ISOs; (2) electric 
utilities are members of ``Day 1'' RTO/ISOs; and (3) electric utilities 
are in neither ``Day 2'' nor ``Day 1'' RTO/ISOs. The NOPR interpreted 
the language of section 210(m)(1) as to what conditions must exist for 
the three types of markets and sought comments.
    32. The NOPR explained that the first standard for relief is 
established in section 210(m)(1)(A) of section 210(m)(1), which applies 
to ``Day 2'' markets with wholesale bilateral long-

[[Page 64347]]

term contracts for the sale of capacity and electric energy available 
to participants. The Commission indicated that, under section 
210(m)(1)(A)(ii), there was no requirement, given the statutory 
language, to consider ``evidence of transactions within the relevant 
market'' when determining whether QFs have nondiscriminatory access to 
``wholesale markets for long-term sales of capacity and electric 
energy.'' The Commission suggested that Congress presumed QFs, which 
have ``nondiscriminatory access to'' ISO and RTO regions with auction-
based day ahead and real time markets, have nondiscriminatory access to 
long-term sales of electric energy and capacity wholesale markets 
outside the interconnected utility. The Commission proposed to find 
that Midwest ISO, PJM, ISO-NE, and NYISO meet the requirements of 
section 210(m)(1)(A).
    33. The second standard for relief is established in section 
210(m)(1)(B), which the Commission found to be intended to apply in 
``Day 1'' RTO/ISOs, i.e., those that do not have both auction-based day 
ahead and real time markets. Section 210(m)(1)(B) provides for 
termination of the requirement that an electric utility enter into a 
new contract or obligation to purchase electric energy from a QF so 
long as there is (i) a Commission-approved regional transmission entity 
providing nondiscriminatory transmission and interconnection services; 
and (ii) ``competitive wholesale markets that provide a meaningful 
opportunity'' to sell capacity and energy on both a short- and long-
term basis and energy on a real-time basis (emphasis added) to buyers 
other than the utility to which the QF is interconnected. In the NOPR, 
the Commission stated that ``meaningful opportunity'' is to be 
determined by the Commission after considering, among other factors, 
``evidence of transactions within the relevant market.'' The Commission 
indicated that taken together, the terms ``competitive,'' ``meaningful 
opportunity'' and ``evidence of transactions'' suggest that Congress 
intended that termination of the purchase requirement in a ``Day 1'' 
market only if it could be established that QFs had opportunities to 
make long-term and short-term sales of capacity and long-term, short-
term and real-time sales of energy into competitive wholesale markets.
    34. The third standard for relief is established in section 
210(m)(1)(C) of section 210(m)(1). Under this standard, the purchase 
requirement is removed in wholesale markets for the sale of capacity 
and electric energy that are, ``at a minimum,'' of comparable 
competitive quality as markets described in subparagraphs (A) and (B). 
The Commission explained that although this provision is not clear on 
its face, its reference to subparagraphs (A) and (B) requires the 
Commission to be mindful, in interpreting the provision, of the two 
types of requirements that are embodied in those sections, i.e., (1) 
nondiscriminatory access to transmission and interconnection services, 
and (2) competitive short-term and long-term markets that provide a 
meaningful opportunity to sell to buyers other than the utility to 
which the QF is interconnected.
b. Comments
    35. ELCON, AWEA, Caithness and Public Interest Organizations 
(PIOs),\23\ for example, state that Congress did not repeal the 
mandatory purchase requirement and that the Commission has a continuing 
obligation to promote QF development. This, they contend, can only be 
accomplished by assuring that markets meet criteria that guarantee that 
QFs will enter into contracts with electric utilities of similar 
quality to those that they received prior to the enactment of section 
210(m) of PURPA before the mandatory purchase obligation can be 
terminated. ELCON appears to suggest that there is only one standard 
for relief from the purchase requirement: ``assurance of a competitive 
market.'' \24\ In essence, ELCON argues that sections 210(m)(1)(A), (B) 
and (C) establish a single standard for terminating the mandatory 
purchase obligation. ELCON states that section 210(m) authorizes the 
Commission to grant relief from the purchase requirement ``if and only 
if a viable market exists.'' \25\ ELCON expresses its concern that 
because discrimination continues and the markets are flawed, 
competition and on-site generation will be discouraged. AWEA and 
Caithness state that the Commission should grant relief from the 
purchase requirement only in markets which are ``sufficiently 
competitive.'' \26\ EPSA argues that the mandatory purchase requirement 
can be terminated only where the Commission finds that the ``economic 
and technical equivalent to mandatory purchase is available through a 
competitive market.''\27\ PIOs argue that electric utilities have to 
demonstrate that QFs do, in fact, have physical and economic access to 
all of the required markets on a nondiscriminatory basis. The American 
Chemistry Council contends that the mandatory purchase requirement can 
be terminated only in those situations where wholesale markets have 
evolved to ensure the long-term commercial viability of QFs which 
enables QFs to attract investment capital and facilitates QF 
development; the American Chemistry Council urges the Commission to 
interpret section 210(m)(1) in such a manner.
---------------------------------------------------------------------------

    \23\ The PIOs filing these comments are the Center for Energy 
Efficiency & Renewable Technologies, Delaware Division of the Public 
Advocate, Environmental Law & Policy Center, Interwest Energy 
Alliance, Izaak Walton League of America, Natural Resources Defense 
Council, Northwest Energy Coalition, Office of the Ohio Consumers' 
Counsel, Pace Energy Project, Project for Sustainable FERC Energy 
Policy, West Wind Wires, and Western Resource Advocates.
    \24\ ELCON Comments at 8.
    \25\ Id.
    \26\ AWEA Comments at 2.
    \27\ EPSA Comments at 9.
---------------------------------------------------------------------------

    36. NPRA reminds the Commission that the main purpose of 
cogeneration is not to serve the needs of an electric power grid or 
``market,'' but, rather, it is to serve the interconnecting industrial 
thermal and electrical load. Consequently, NPRA argues that the 
operation of these facilities may require different market features 
than are required by utility electric generation or merchant 
generation. NPRA argues that Congress intended to terminate the ``must 
take'' requirement only when it can be demonstrated that an electric 
market supports not only the role of merchant power, but the retention 
and encouragement of cogeneration. In other words, while a market may 
prove an efficient and viable alternative for a merchant plant, it does 
not necessarily ensure that it is an efficient and viable alternative 
for sales of power by a cogeneration facility.
c. Commission Determination
    37. We disagree with commenters' interpretation of the statutory 
standard for relief from the requirement that an electric utility enter 
into a new contract or obligation to purchase electric energy from a 
QF. There is nothing in section 210(m) to suggest that Congress 
intended to ensure a QF's commercial viability. Nor does the statute 
require the Commission to find that the ``economic and technical 
equivalent to mandatory purchase is available through a competitive 
market'' before it terminates the requirement that an electric utility 
enter into a new contract or obligation to purchase electric energy 
from QFs. Although we certainly agree with the QF commenters that 
Congress did not repeal the mandatory purchase requirement in its 
entirety, Congress clearly left the Commission with no choice but to 
eliminate the mandatory purchase requirement for utilities operating in 
certain markets upon

[[Page 64348]]

certain findings being made. The fact is that the language of section 
210(m)(1) provides that an electric utility shall be relieved of the 
requirement to purchase from a QF if the Commission makes certain 
findings, which findings do not include a determination that the 
``economic and technical equivalent to mandatory purchase is available 
through a competitive market.'' This is not what section 210(m) says, 
nor would it make any sense to infer such an interpretation. 
Competitive markets do not, by definition, impose ``mandatory'' 
purchase obligations on buyers. Buyers choose among differing sellers 
based on their relative cost, reliability, etc. The QFs making this 
argument therefore ignore the relevant statutory language and, in doing 
so, reargue the debate before Congress when it enacted section 210(m).
    38. The most reasonable interpretation of section 210(m)(1) is that 
Congress, in setting forth discrete tests for three different types of 
markets, was requiring the Commission to differentiate among these 
markets, and the differing circumstances they present, in determining 
whether a utility must be relieved of the mandatory purchase 
obligation. Although the statute is ambiguous in certain respects, it 
clearly reflects Congressional intent that the Commission differentiate 
among these three markets in making its determination regarding whether 
to terminate the purchase obligation. This approach not only reflects a 
natural reading of the words of the statute, it also is reasonable 
given the nature of the determination being made. There is little 
debate in this proceeding that Day 2 organized markets, as a general 
matter, provide greater opportunities for QFs (and other independent 
generators) to compete than unorganized markets because of the 
existence of day-ahead and real-time energy markets that allow all 
competing generators to submit bids to participate in the market on a 
nondiscriminatory basis. Although other markets--including ``Day 1'' 
markets and non-organized markets--also provide opportunities for 
independent generators to compete, it is not surprising that Congress 
would find that, as a general matter, they have less formalized 
structures for doing so and, hence, utilities seeking relief from the 
purchase obligation in those markets would bear a heavier evidentiary 
burden to obtain relief. The Commission cannot, as some commenters in 
effect ask us to do, simply collapse the three discrete tests into one 
test that requires an electric utility to demonstrate that a QF will 
remain economically viable if the purchase requirement is eliminated. 
This would make the three different statutory standards meaningless.
2. The Nondiscriminatory Access Requirement of Section 210(m)(1) and 
the OATT
a. NOPR
    39. Section 210(m)(1) provides for termination of the requirement 
for an electric utility to enter into a new contract or obligation to 
purchase from a QF if the QF has ``nondiscriminatory access'' to a 
wholesale market described in section 210(m)(1)(A), (B), or (C). In the 
NOPR, the Commission proposed that there be a rebuttable presumption 
that a utility provides nondiscriminatory access if it has an Order No. 
888 OATT (or a utility providing service under a Commission-approved 
reciprocity tariff). The Commission stated that QFs or any other party 
should be allowed to rebut that presumption, but that improper 
implementation of an OATT is more properly the subject of a complaint 
to ensure that the OATT is properly implemented.
b. Comments
    40. ELCON and virtually every other commenter from the QF industry 
argue that the Commission erred in the NOPR by proposing a rebuttable 
presumption that a utility provides ``nondiscriminatory access'' to the 
market conditions identified in section 210(m)(1)(A), (B), or (C) if it 
has an OATT in compliance with the Commission's pro forma OATT, or a 
Commission-approved reciprocity tariff. They argue that the proposal 
reflects an overly simplified interpretation of the statute's 
``nondiscriminatory access'' requirement and that the mere existence of 
transmission rights under an OATT does not necessarily ensure that QFs 
have nondiscriminatory access to markets. ELCON and the QF industry 
argue that barriers that discriminate against QFs could exist 
notwithstanding the adoption of an OATT. The California Cogeneration 
Council (CCC), for instance, states that these barriers could be 
present in ISO policies that make it more difficult or burdensome for 
QFs to participate in a market as compared with other types of 
generators or market participants. ELCON and the QF industry argue that 
section 210(m)(1) requires the Commission to consider such potential 
barriers, and to evaluate whether QFs truly have nondiscriminatory 
access to alternative markets, before concluding that the requirements 
of section 210(m)(1) have been met.
    41. In addition, ELCON and the QF industry state that the 
Commission has recognized that the intent of Order No. 888 concerning 
nondiscriminatory access to transmission has not been fully realized; 
first in Order No. 2000 \28\ and more recently in the NOPR on 
Preventing Undue Discrimination and Preference in Transmission 
Service.\29\
---------------------------------------------------------------------------

    \28\ Regional Transmission Organizations, Order No. 2000, 65 FR 
809 (Jan. 6, 2000), FERC Stats. & Regs. P 31,089 (1999), order on 
reh'g, Order No. 2000-A, 65 FR. 12,088 (Mar. 8, 2000), FERC Stats. & 
Regs. P 31,092 (2000), aff'd sub nom. Pub. Util. Dist. No. 1 of 
Snohomish County, Washington v. FERC, 272--F.3d--607 (D.C. Cir. 
2001).
    \29\ See supra note 15.
---------------------------------------------------------------------------

    42. EPSA, Reliant and PIOs add that any tariff for transmission and 
interconnection services must incorporate changes consistent with the 
Commission's pro-competitive policies of Order No. 2000 and any further 
improvements determined as part of the notice of inquiry (NOI). EPSA 
argues that only then will the transmission and interconnection 
services be provided on a nondiscriminatory, pro-competitive basis.
    43. Dow Chemical Company (Dow) states that there are numerous 
instances in which QFs effectively have no access to organized markets 
or to transmission services regardless of whether the utilities to 
which they are interconnected technically participate in organized 
markets or provide transmission and interconnection services on an open 
access basis. Dow states that instead, in such instances, the only 
entity physically capable of acquiring QF output is the utility with 
which the QF is interconnected. American Forest & Paper states that 
market rules designed for merchant generation are often highly 
discriminatory to QFs which, because of the thermal needs of a 
cogeneration QF's thermal host, have limited dispatchability and must 
often be operated in base load configurations. American Forest & Paper 
states that market rules designed around the dispatchability of 
resources which do not have attendant manufacturing facility 
obligations may discriminate unnecessarily and unreasonably against 
QFs. Council of Industrial Boiler Owners (CIBO) state that by finding 
that an OATT is sufficient to ensure nondiscriminatory access to 
markets, the Commission fails to consider the operational differences 
faced by QFs.
    44. In addition, Commenters argue that the NOPR's proposal that 
there be a rebuttable presumption that a utility provides 
nondiscriminatory access if it

[[Page 64349]]

has an OATT is in essence an irrebuttable presumption. ELCON and the 
American Chemistry Council state that although the Commission 
characterizes the presumption as ``rebuttable,'' it also states that 
the presumption ``cannot be rebutted by an argument that the utility 
has not properly implemented or administered its OATT.''
    45. ELCON argues that it will be difficult for the Commission to 
sustain on judicial review an irrebuttable presumption that the OATT 
provides nondiscriminatory transmission access for all QFs when its own 
NOI recognizes the continuation of patterns of abuse--if anything 
exacerbated as transmission owners feel the pressure of competition 
from independent generation. ELCON states that the concern over 
potential discrimination will only be exacerbated in a scenario like 
the Entergy Independent Coordinator of Transmission (ICT) where the 
utility and not the RTO provide service. ELCON states that while the 
problem of discrimination in transmission is pervasive, a fortiori, QFs 
of whatever size connected at distribution voltage do not have access 
to markets. ELCON states that the scenario of QFs connected at 
distribution voltage and the circumstances of small QFs illustrate why 
generic conclusions are inappropriate.
    46. Further, Occidental Chemical Corporation (Occidental) argues 
that the Commission's conclusion that a complaint, rather than the 
application proceeding, is the only vehicle available to address a QF's 
concern that the OATT is being administered or implemented in a 
discriminatory manner is inconsistent with the plain language of the 
statute. Occidental states that a QF cannot provide meaningful comments 
on whether an electric utility's application meets the 
nondiscriminatory showing required by statute, if the QF is barred from 
raising issues regarding discriminatory administration or 
implementation of the OATT and can only raise such issues in a separate 
complaint proceeding. In addition, Occidental argues that it is unclear 
how the Commission could make a determination that QFs have 
nondiscriminatory access under an electric utility's OATT if the 
Commission bars, from the outset, all evidence that the OATT is being 
administered or implemented in a discriminatory manner.
    47. PJM is concerned with the Commission's presumption for both 
section 210(m)(1)(B) and (C) that having an Order No. 888 OATT on file 
is enough to establish a presumption of nondiscriminatory access to the 
grid. PJM states that rather, the Commission should analyze particular 
facts and circumstances relative to concerns raised with potential 
access to the marketplace for QFs.
    48. EEI, Allegheny Power, Alliant, Entergy, National Grid and PSNM/
TNP agree with the NOPR's proposal. EEI states that QF commenters raise 
no compelling evidence that access provided pursuant to Commission-
approved OATTs is deficient. EEI states that nondiscriminatory access 
is the standard set by Congress in EPAct 2005, and Congress was fully 
aware when it used this standard that the OATT is the mechanism for 
achieving nondiscriminatory access. Allegheny joins EEI in stating that 
the Commission should make a generic finding that QF access pursuant to 
a Commission-approved OATT meets the ``nondiscriminatory access'' test 
of section 210(m) for all markets, whether centrally organized and 
administered or not.
    49. EEI states that the fact that the Commission is considering 
updating Order No. 888 through its ongoing NOI does not mean that 
reliance on the OATT as the current benchmark for nondiscriminatory 
access is inappropriate. EEI states that at this preliminary stage of 
the Commission's inquiry into whether changes to the OATT should be 
required, it is premature to predict what the Commission may or may not 
finally conclude with respect to the OATT. EEI states that by basing so 
much of their argument on the Commission's consideration of reforms to 
Order No. 888, QF commenters are in essence converting a Commission NOI 
into a Commission final rule. EEI states that even if the Commission 
fine tunes the OATT, it would not mean that existing open access 
practices pursuant to Commission-approved OATT are discriminatory. EEI 
states that if the Commission does ultimately require changes, QFs--
like any other generator--will reap the benefit of those enhancements.
    50. EEI further argues that where issues regarding implementation 
or administration of a particular OATT arise, a complaint pursuant to 
section 206 of the FPA is the established mechanism available to QFs 
(or any other generator or transmission customer) to raise such 
concerns. It states that in a complaint proceeding, the Commission has 
the ability to remedy any denial of open access that results from 
improper administration of an OATT, but that ability is not present 
under PURPA section 210(m), where the Commission's only authority is to 
reject an application for termination of the mandatory purchase 
requirement.
    51. EEI argues against the QFs' claim that the Commission has made 
the presumption of nondiscriminatory access under an OATT essentially 
irrebuttable. It states that as the NOPR provides, QFs or any other 
party will be afforded the opportunity to provide ``specific and 
credible evidence that the QF does not have nondiscriminatory access to 
wholesale markets.''
c. Commission Determination
    52. Under section 210(m)(1), the Commission must find that the QF 
has ``nondiscriminatory access'' to the wholesale markets described in 
section 210(m)(1)(A), (B), or (C) in order to terminate the requirement 
that an electric utility enter into a new contract or obligation to 
purchase electric energy from a QF. The Commission proposed in the NOPR 
that there be a rebuttable presumption that a utility provides the 
nondiscriminatory access required in section 210(m)(1) if it has an 
open access transmission tariff in compliance with our pro forma OATT 
(or a Commission-approved reciprocity tariff). However, the Commission 
also proposed that QFs or any other affected party should be allowed to 
rebut that presumption, for example, by providing specific and credible 
evidence that the QF does not have nondiscriminatory access to 
wholesale markets.
    53. The Commission reaffirms the determination in the NOPR that 
only issues not related to the provision of open access transmission 
under the OATT may be raised to rebut the nondiscriminatory access 
presumption. We disagree with arguments of ELCON and Occidental that a 
QF should be able to litigate open access implementation issues in the 
context of 90-day QF applications or that, as Occidental claims, use of 
complaint proceedings to address OATT implementation is inconsistent 
with the language of the statute. We also reject arguments that, 
because the Commission issued a NOPR to reform the OATT, that we can no 
longer adopt a presumption that a Commission-approved OATT meets the 
requirements of section 210(m) regarding nondiscriminatory transmission 
access.\30\ As we have

[[Page 64350]]

found in market-based rate proceedings and other contexts, a 
transmission owner that has an OATT on file has met the obligation set 
forth in Order No. 888 to provide nondiscriminatory transmission 
access. Until we issue a Final Rule in RM05-25-000 that modifies Order 
No. 888, no more is required. Further, the FPA provides specific 
mechanisms, complaints under FPA section 206 or 306, to address 
allegations that a particular utility is not properly administering the 
OATT. We take very seriously allegations that a transmission owner is 
violating its OATT, but there are established statutory procedures for 
addressing such allegations. PURPA section 210(m) does not change this 
statutory framework.\31\
---------------------------------------------------------------------------

    \30\ In this regard we note that the rulemaking to reform the 
OATT is intended to remedy the ``opportunity'' for undue 
discrimination; the Commission did not base its institution of the 
rulemaking in Docket No. RM05-25-000 on any finding that the OATT 
allows actual discrimination. To the extent that ELCON argues that, 
through the NOPR process, the Commission has recognized ``the 
continuation of patterns of abuse,'' ELCON mischaracterizes the 
basis of the OATT rulemaking.
    \31\ In fact, PURPA section 210(m) provides a compressed 90-day 
time frame in which the Commission, after notice and opportunity for 
comment, must act on applications. This provides a clear indication 
that Congress did not intend hearing or lengthy proceedings in order 
to make a determination of whether the electric utility must be 
relieved of the mandatory purchase requirement. A QF may, of course, 
file a complaint with the Commission at any time, including a 
separate complaint in conjunction with its comments on an electric 
utility's application for relief from the mandatory purchase 
requirement.
---------------------------------------------------------------------------

    54. As to PJM's argument that a filed Order No. 888 OATT is not 
enough to establish a presumption of nondiscriminatory access to the 
grid with respect to markets in subparagraphs (B) and (C) of section 
210(m)(1), we find PJM to have misinterpreted the NOPR. Affected 
parties under subparagraphs (B) and (C) have the same opportunity to 
rebut the presumption of nondiscriminatory access as parties affected 
under subsection (A). We note that, in general, the evidentiary 
showings for relief from the requirement that an electric utility enter 
into a new obligation to purchase electric energy from a QF in section 
210(m)(1)(B) are higher than the evidentiary showings in section 
210(m)(1)(A), and the evidentiary showings in section 210(m)(1)(C) are 
higher than the evidentiary showings required in section 210(m)(1)(B).
    55. Comments discussed above that are raised in the context of open 
access service but also touch upon concerns with market rules and or 
operational issues, for example, are addressed further below.
3. Other Market Access Issues Under Section 210(m)(1)
    56. The Commission explained in the NOPR, and has confirmed in this 
rule, that the OATT adopted in Order No. 888,\32\ and interconnection 
rules, adopted in Order Nos. 2003 \33\ and 2006,\34\ are designed to 
eliminate undue discrimination in the provision of transmission and 
interconnection services. However, in the NOPR the Commission 
recognized that small QFs may be in a unique situation with respect to 
nondiscriminatory access because they interconnect with the 
interconnected utility at a distribution level.\35\ In the NOPR, the 
Commission sought comment on whether the utilities' purchase obligation 
should be retained for small renewable projects. The Commission also 
sought comment on whether there may be other categories of QFs that 
lack nondiscriminatory access to RTO/ISO short-term or long-term 
wholesale markets for which the Commission should retain the utilities' 
purchase obligation. With respect to whether the purchase obligation 
should be retained for small renewable projects, the Commission sought 
comments on how to define ``small,'' e.g., 5 MWs or below, 20 MWs or 
below.\36\
---------------------------------------------------------------------------

    \32\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities and 
Recovery of Stranded Costs by Public Utilities and Transmitting 
Utilities, Order No. 888, 61 FR 21540 (1996), FERC Stats. & Regs. ] 
31,036 (1996), Order No. 888-A, FERC Stats. & Regs. ] 31,048 (1997), 
order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), order on 
reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in relevant 
part sub nom. Transmission Access Policy Study Group v. FERC, 225 
F.3d 667 (D.C. Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 
1 (2002).
    \33\ Standardization of Generator Interconnection Agreements and 
Procedures, Order No. 2003, 68 FR 49845 (Aug. 19, 2003), FERC Stats. 
& Regs. ] 31,146 (2003), order on reh'g, Order No. 2003-A, 69 FR 
15932 (Mar. 26, 2004), FERC Stats. & Regs. ] 31,160 (2004), order on 
reh'g, Order No. 2003-B, 70 FR265 (Jan. 4, 2005), FERC Stats. & 
Regs. ] 31,171 (2004), order on reh'g, Order No. 2003-C, 70 FR 37661 
(June 30, 2005), FERC Stats. & Regs. ] 31,190 (2005).
    \34\ Standardization of Small Generator Interconnection 
Agreements and Procedures, Order No. 2006, 70 Fed. Reg. 34,100 (Jun. 
13, 2005), FERC Stats. & Regs. ] 31,180 at 31,406-31,551 (2005), 
order on reh'g, Order No. 2006-A, 70 Fed. Reg. 71,760 (Nov. 30, 
2005), FERC Stats. & Regs. ] 31,196 (2005).
    \35\ NOPR at P 20.
    \36\ Id.
---------------------------------------------------------------------------

    57. Commenters from the QF industry essentially argue that certain 
categories of QFs should be ``exempt'' from section 210(m)(1) because 
these QFs lack nondiscriminatory access to the markets described in 
section 210(m)(1)(A), (B), or (C). In general, they argue that QFs lack 
nondiscriminatory access if: (1) They are of a small size, (2) they 
have certain operational characteristics such that the QF cannot access 
a particular market, (3) they are interconnected at the distribution 
level, or (4) a combination of the above. As discussed further below, 
the comments we have received do not provide a justification for 
categorically exempting any category of QFs from any future orders 
which may terminate a utility's requirement to enter into new contracts 
or obligations to purchase from QFs. No class of QFs has been shown to 
uniformly lack nondiscriminatory access based on a single factor. We 
also agree with commenters, such as AEP, Entergy, Missouri River, 
Montana-Dakota, PJM Transmission Owners, PPL, Progress Energy and Xcel, 
that section 210(m) does not give the Commission authority to 
categorically exempt certain QFs from statutory provisions. However, we 
believe the record does support creating a rebuttable presumption that 
certain QFs may not have nondiscriminatory access to markets because of 
their small size.
a. Small Size
i. Comments
    58. CIBO argue that smaller QFs typically are less able to predict 
their generation and power export/import levels due to unpredictable 
demand fluctuations. They state that while larger facilities may face 
similar unpredictable situations, they may have more latitude in 
selecting and operating alternative equipment and that latitude could 
allow for a higher level of power flow control. CIBO also argue that 
because of a QF's small size, the transmission charges involved in 
accessing the three markets described in section 210(m)(1), including 
locational marginal pricing and transition charges, can place a small 
QF in a position where it cannot reach those markets. Also, CIBO, AWEA, 
and Granite State argue that certain markets may require membership 
fees in order to participate in the market. CIBO state that a 
sufficiently large QF may face similar problems, but it presumably has 
greater resources to address those problems, and sufficient economic 
interest in the success of the generator to bring those resources to 
bear on the problem. On the other hand, they argue that a small QF is 
more likely to lack the resources and to have less economic incentive 
to apply those resources to the problem, especially in light of the 
staying power of its competition.
    59. Granite State adds that most small QF hydroelectric plants, for 
example, are located in areas which do not provide direct access to 
RTO/ISOs. It states that small QF hydroelectric projects are generally 
located in areas remote from high voltage power lines, their locations 
being determined by the site of existing dams. Granite State states 
that the amount of generation

[[Page 64351]]

from a small QF hydroelectric plant is dependent on the amount of water 
flowing through the turbines on a particular hour. It states that they 
have limited resources and the staff employed by these projects are 
generally engaged in the day to day operation of the projects. Granite 
State states that developers of small hydroelectric plants do not have 
the software, computer and monitoring equipment to integrate to RTO/ISO 
operations and, in many regions, would not even be eligible to bid 
their energy into these markets because they are too small for the 
applicable minimum block.
    60. CIBO also argue that a small QF exemption, such as a MW limit, 
would provide an administrative advantage because it would be less 
likely to involve the QF and the Commission in additional proceedings 
and thus, avoid potential additional burden on parties and the 
Commission.
    61. Although not arguing for a size exemption, EEI states that it 
would be appropriate to allow affected small QFs in all markets, 
including ``Day 2'' organized markets, to have an opportunity to 
demonstrate that they effectively lack nondiscriminatory access to 
those markets, despite their legal right to such access under an OATT.
    62. EEI suggests that that the Commission could consider evidence 
of the following limited circumstances as a basis for finding that a 
small QF effectively may not have nondiscriminatory access to markets. 
One, where a small industrial cogenerator \37\ (with a nameplate 
capacity of 5 MW or less) has: (a) highly variable thermal and 
electrical demand on a daily basis; (b) highly variable and 
unpredictable wholesale sales on a daily basis; and (c) no access to a 
mechanism to schedule transmission service or make sales in advance on 
a consistent basis, either because of the variability of its 
electricity production or because of market rules that prevent the QF 
from scheduling transmission service or participating in organized 
markets. Two, where a QF is very small,\38\ and cannot aggregate its 
electricity production with other nearby facilities, and can 
demonstrate that it is not directly or indirectly modeled in the energy 
management or market information system, cannot directly sell any 
product or service into the RTO or ISO market and appears to the RTO or 
ISO only as a reduction to load.
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    \37\ EEI does not expect that the Commission would extend the 
opportunity to demonstrate lack of access under this proposal to 
wind generators. EEI states that while electricity production from 
wind power is variable, wind generation is predictable in its 
variability, and the Commission has accommodated this variability 
through interconnection rules and other policies. EEI asserts that 
wind generators differ as well from small industrial cogenerators, 
whose primary purpose, in accordance with PURPA, is not intended to 
be the production of electricity, while wind generators are 
exclusively electricity producers.
    \38\ EEI states that the size of a ``very small'' QF for 
purposes of its proposed exception to the termination of the 
mandatory purchase obligation is likely to vary among RTO/ISOs, 
based on factors such as operational requirements of the particular 
RTO, any threshold level for transactions that may be required in an 
RTO, any minimum size requirements for participation in the RTO 
market, or other factors specific to the RTO/ISO market involved. 
For example, EEI notes a ``very small'' QF for the NYISO market 
could be a QF less than 1 MW that has not been able to aggregate 
supply in order to participate at the 1 MW minimum transaction level 
established in the NYISO tariff. See NYISO FERC Electric Tariff, 
Original Volume No. 2 (``Services Tariff''), Sections 4.1.4, 
4.2.2(c)(1) and 5.12.
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    63. AEP, Entergy, FirstEnergy, Missouri River and Montana-Dakota, 
PJM Transmission Owners, PPL, Progress Energy and Xcel argue that no 
exemption should be allowed because: (1) All QFs are eligible to 
receive transmission service under the pro forma OATT, regardless of 
the level at which they are interconnected; (2) Congress has not given 
the Commission the authority to exempt QFs from the provisions of 
section 210(m); and (3) an exemption could lead to uneconomic QF 
``gaming'' strategies through dividing generating facilities so that 
they are under the size limit for the mandatory purchase obligation to 
kick-in.
    64. Other Commenters argue that no exemption should be granted in 
certain RTO/ISOs. PJM Transmission Owners and PPL Electric argue that 
PJM has developed special procedures to ensure that small generators, 
even those under 20 MW, have comparable access to energy and capacity 
markets. Specifically, the PJM Transmission Owners state that Subpart G 
of PJM's tariff is dedicated to small generators to provide clear and 
concise rules for these power producers to ensure that they have 
comparable access to participate in energy and capacity markets 
allowing load to rely upon such resources. PJM notes that since 1999, 
PJM has successfully interconnected numerous small projects. These 
include 44 projects rated between 5-20 MW and 28 rated at 5MW or less. 
It further states that the majority of these projects are sponsored by 
developers unaffiliated with transmission or distribution system 
owners. Montana-Dakota adds that QFs have nondiscriminatory access to 
the Midwest ISO markets regardless of size.
    65. With regard to the Midwest ISO, several commenters such as 
Missouri River Energy and Montana-Dakota argue that no exemption is 
necessary for small QFs because small renewable projects have become 
very marketable given the current regulatory and political environment 
of increasing renewable portfolio standards.
    66. As to NYISO and ISO-NE, National Grid states that they have 
generation interconnection policies in place for small as well as large 
generators. National Grid states that there are no minimum size 
requirements for a generator to join NEPOOL, and while the NYISO 
currently will not accept bids in the markets it administers from 
generators with 1 MW or less of capacity, that limitation is not 
immutable. It states that subject to that limitation, the market rules 
in ISO-NE and the NYISO allow settlement for all sizes of generators. 
NSTAR adds that there are sufficient privileges afforded to small 
renewable resources in NEPOOL, and regulatory requirements and monetary 
incentives in the New England states to sustain small renewable 
projects. The New York Transmission Owners argue that in NYISO, all 
facilities, including those with a capacity under 20 MW, have the same 
equal and nondiscriminatory access to all NYISO markets and all 
services offered by the NYISO under its tariffs. NYISO does not take a 
position on whether there should be an exemption. It states, however, 
that any unit, regardless of ownership or QF status, that has a 
generating capacity of two MWs or higher can bid directly into the 
NYISO markets.
    67. As to what QF size should be considered ``small,'' the 
proposals varied significantly from 1 MW to 80 MWs.\39\ However, in 
general, most of the QF industry supports a 20 MW exemption, utilities 
generally support no exemption, and some entities are willing to 
support an exemption for very small QFs (i.e., smaller than 1 MW) in 
specific service territories. Granite State and American Energy argue 
that a 20 MW demarcation strikes a reasonable balance between small and 
large projects. The nameplate capacity of many renewable technologies 
like wind and hydro do not accurately reflect the annual generating 
capacity of such units due to the lower capacity factor dictated by the 
variability in available river flow and wind. Granite State states that 
the 20 MW limitation would provide the

[[Page 64352]]

needed flexibility to ensure that small projects are protected.
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    \39\ Industrial Boilers proposed 80 MW, UAE proposed 30 MW, AWEA 
and ELCON proposed 20, and EEI proposed 1 MW for cogeneration and 5 
MW for small production.
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    68. In addition, ELCON, Granite State, AWEA, and Landfill Gas state 
that the 20 MW demarcation is consistent with: (1) Order No. 671; and 
(2) the Standardization for Small Generation Interconnection Agreements 
and Procedures, Order Nos. 2006 and 2006-A, which recognizes that small 
generators, i.e., 20 MW or below, should have different standards than 
large generators. AWEA also states that utilizing a 20 MW threshold for 
``small'' generators will also avoid inconsistencies with state 
interconnection procedures which are designed around the current 20 MW 
threshold for ``small'' generators. Further, AWEA states that a 20 MW 
threshold will help prevent RTO/ISO market-participation costs from 
discouraging market participation and development of small generators.
    69. CIBO argue that ``small'' should be defined as 80 MW or less. 
They state that Congress already adopted 80 MW to reflect what is small 
in PURPA, which used 80 MW to treat as QFs small power production 
facilities with a net capacity of 80 MW or less that produce 
electricity from biomass, waste, renewable resources, geothermal 
resources, or any combination of these sources. In addition, CIBO argue 
that an 80 MW bright line would also resolve a number of the 
operational concerns faced by QFs. They argue that a QF of greater than 
80 MW is more likely to interconnect to the grid at higher voltages, 
and less likely to interconnect at distribution voltages, thereby 
addressing a number of the transmission access issues, including in 
particular the distribution facilities charges that lower voltage QFs 
will face. Regardless of the interconnection voltage, CIBO argue that a 
QF of greater than 80 MW will more likely have an economic interest 
sufficient to seek to participate in the market and the resources to 
participate. Further, CIBO argue that a QF of greater than 80 MW will 
probably have more latitude in selecting and operating alternative 
equipment and that latitude can allow for a higher level of power flow 
control. Finally, they argue that an 80 MW bright line will not 
undercut what they claim is the Commission's goal of limiting PURPA 
abuse and would ensure that units benefiting from the mandatory 
purchase and sale obligations will in fact be the QFs that Congress has 
wanted to protect.
    70. Granite State and USCHPA are open to a hybrid definition of 
``small'' QF whereby small QFs with a nameplate capacity of 5 MW or 
less would automatically retain the right to make sales to their 
utilities at avoided cost rates. Those QFs with capacities of more than 
5 MW and less than 20 MW would have the benefit of a rebuttable 
presumption in favor of retaining the utility's mandatory purchase 
obligation. UAE simply states that it believes that a small QF should 
be defined as less than 30 MW without elaboration.
    71. PJM agrees that EEI's size limit exception (1 or 5 MWs) may be 
appropriate as applied to very small entities that do not aggregate 
their generation. PJM states, however, that in the PJM market resources 
rated below very small levels are permitted to aggregate for the 
purpose of submitting offers. Therefore, PJM concludes that a facility 
less than 100 kW may meet a ``unique circumstances'' standard. PJM 
states that it does not impose a size limit on modeling. PJM states 
that it requires that new resources rated higher than 10 MW, whether in 
the PJM market or behind the meter, as well as any new capacity 
resource intending to set real-time locational marginal pricing (LMP), 
must be explicitly modeled in the PJM Energy Management System network 
model. As to access, PJM states that the PJM market has a 100 kW 
minimum for offers to buy and sell in the Capacity and Day-Ahead 
Markets and 1 kW for offers in the Real-Time Market.
ii. Commission Determination
    72. We believe that the record supports creating a rebuttable 
presumption \40\ that certain QFs may not have nondiscriminatory access 
to markets because of their small size. In addition, we find that a 
reasonable and administratively workable definition of ``small'' is 20 
MW. As a result, the Final Rule creates a rebuttable presumption that 
the requirement that an electric utility enter into new contracts or 
obligations to purchase from a QF remains in effect, in all markets, 
for QFs sized 20 MW net capacity \41\ or smaller.\42\ This rebuttable 
presumption will apply to applications in markets described in section 
210(m)(A), (B), or (C). To rebut this presumption, the filing electric 
utility will be required in its application to demonstrate, with regard 
to each small QF that it, in fact, has nondiscriminatory access to the 
market.
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    \40\ As we noted above in P 57, no class of QFs has been shown 
to uniformly lack nondiscriminatory access based on a single factor. 
Thus, we are not making a finding here but are establishing a 
rebuttable presumption.
    \41\ A QF, when it seeks certification, states what size it is. 
The size it is required to state is its ``net capacity'' which is 
its gross capacity, less station power. In the case of Commission-
certified facilities, the Commission certifies the QF at its net 
capacity; self-certified facilities self-certify at net capacity. 
The Commission has been consistent over the years in requiring QFs 
to state their net capacity in the Form 556 which is the basis of 
both applications for Commission certification, and notices of self-
certification. A QF's Commission certified (or self-certified) net 
capacity would determine whether the QF qualifies for the ``small 
size'' rebuttable presumption in this Final Rule.
    \42\ Herein referred to as ``small QF.''
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    73. The Commission finds persuasive commenters' arguments that some 
QFs may not have nondiscriminatory access to one of the three markets 
described in section 210(m)(1)(A), (B), or (C) because of their small 
size. There was agreement among commenters representing both QFs and 
utilities that small size could affect a QF's ability to access 
markets. To varying degrees, the QF industry, EEI, and also PJM, 
recognized that small QFs may not have nondiscriminatory access to the 
three markets described in section 210(m)(1)(A), (B), or (C). There was 
not, however, consensus as to what constitutes ``small'' for purposes 
of identifying QFs that may not have nondiscriminatory access to 
markets.
    74. In determining what constitutes ``small'' for purposes of the 
rebuttable presumption, we are not making a finding that all QFs 
smaller than a certain size lack nondiscriminatory access to markets. 
Rather, utilities seeking to terminate the requirement that they enter 
into new contracts or obligations to purchase from small QFs will be 
required to rebut the presumption that QFs sized 20 MW net capacity or 
smaller do not have access. A utility's demonstration must be filed as 
part of its application filed pursuant to section 292.310 of our 
regulations.
    75. Commenters suggested various sizes as the demarcation between 
QFs that can access markets. CIBO suggested 80 MW as the logical 
demarcation point, pointing to the definition of ``small power 
production facilities'' in PURPA. Granite State, AWEA and Landfill Gas 
suggest that the Commission use 20 MW as the demarcation pointing to 
the Commission's use of 20 MW as being the demarcation between large 
and small generators for interconnection purposes and for purposes of 
QF exemption from sections 205 and 206 of the FPA.
    76. Keeping in mind that we are creating a rebuttable presumption, 
and to include most small QFs that may lack nondiscriminatory access to 
markets within the presumption, we find that the 20 MW demarcation is 
reasonable. As pointed out by commenters, the Commission used 20 MW in 
Order No. 671 to exempt QFs that are 20 MW or smaller from sections 205 
and 206 of the FPA. The Commission also used the 20 MW demarcation for 
eligibility for the interconnection rules contained in Order Nos. 2006 
and 2006-A, which recognize that small generators, i.e., 20

[[Page 64353]]

MW or below, should be subject to different standards than large 
generators.\43\ In adopting this 20 MW demarcation in this proceeding, 
we recognize that no single per-MW demarcation is perfect. However, we 
believe that, in creating a rebuttable presumption, it is necessary to 
establish a clear demarcation and, as indicated, that 20 MW is 
appropriate for that purpose. We are influenced by the fact that the 
statute provides a very compressed 90-day time frame in which parties 
may provide the record support for a determination of whether a utility 
must be relieved of the purchase obligation. The statute does not 
provide time for lengthy litigation. Unlike other provisions of the 
FPA, which require notice and an opportunity for ``hearing,'' section 
210(m)(a)(3) provides for notice and opportunity for ``comment'' and a 
final decision within 90 days of filing. Thus, it is consistent with 
the statutory framework to provide clear demarcations that will permit 
the Commission to make reasoned determinations within the 90-day 
period. After balancing all relevant considerations, we therefore adopt 
a clear demarcation of ``small QF'' in this Final Rule.
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    \43\ Order No. 2006 defined a ``Small Generating Facility'' as a 
device used for the production of electricity having a capacity of 
no more than 20 MW. The Commission concluded in Order No. 2006 that 
general consistency between the Commission's interconnection 
procedures document and interconnection agreement adopted in that 
final rule and those of the states will be helpful to removing 
roadblocks to the interconnection of Small Generating Facilities. 
See Order No. 2006 at P 4.
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    77. The Commission will not allow for gaming of this 20 MW 
rebuttable presumption. If parties are concerned that a QF has engaged 
in such gaming with regard to the certification or siting of a 
particular facility, we encourage those parties to bring their concerns 
to our attention. In any such proceeding, we will consider all relevant 
factors, including, but not limited to, ownership, proximity of 
facilities, and whether facilities share a point of interconnection. 
For purposes of evaluating proximity of facilities with regard to 
alleged gaming of this rebuttable presumption, we will not be bound by 
the one-mile standard set forth in 18 CFR 292.204(a)(2).
    78. In order to rebut the 20 MW presumption, an electric utility 
will have the full burden to show that small QFs have nondiscriminatory 
access to the market of which the electric utility is a member. We will 
not specify, in this Final Rule, what evidence would be sufficient, but 
note that relevant evidence may include the extent to which the QF has 
been participating in the market or is is owned by, or is an affiliate 
of, a entity that has been participating in the relevant market.
b. Operational Characteristics and Transmission Constraints
i. Comments
    79. Many commenters argue that dispatchability and intermittent 
resource characteristics do not allow QFs to have nondiscriminatory 
access to the markets described in section 210(m)(1)(A), (B), or (C). 
Several commenters argue that before the purchase requirement is lifted 
the Commission must consider the unique generation operational 
differences of certain QFs that affect their nondiscriminatory access 
to competitive markets. For example, American Forest & Paper states 
that real-time and day-ahead, bid-based markets are, in themselves, 
inadequate to support baseload operations of QFs with limited 
dispatchability. American Forest & Paper states that bidding into an 
hourly energy market subjects QFs to unworkable dispatch risks which 
may require either: (1) Bidding a price too low to support fixed cost 
recovery in order to ensure dispatch; or (2) jeopardizing industrial or 
other processes required to be primary under newly enacted section 
210(n). Similarly, CIBO argues that the Commission should require an 
analysis of the operational issues, including, for example, the voltage 
level of the interconnection between the QF and the grid, and the fact 
that cogeneration thermal host limits the ability to dispatch a QF. It 
states that the mandatory purchase obligation should only be removed if 
it is demonstrated that markets are truly accessible to QFs, taking 
into consideration QF operational issues, including size, in some cases 
interconnecting at distribution voltage (with the attendant costs of 
paying for distribution adders), the different efficiency and 
operational constraints of industrial boilers, the different efficiency 
and operational constraints caused by industrial cogeneration hosts, 
and the impact of transmission charges, including locational marginal 
pricing and transition charges, on economically marginal QF generation.
    80. Florida Industrial argues that the Commission should 
specifically retain the utility obligations to purchase for that 
category of ``process-following'' QFs that rely on a reject waste heat 
from an associated industrial manufacturing process for the production 
of electricity and thermal energy--and where the amount of reject waste 
heat varies with manufacturing production rates--such as in phosphate 
fertilizer manufacturing operations. It states that such process-
following QFs generate at high efficiencies and consume little or no 
fossil fuels. However, because the rate of electric energy production 
varies (``follows'') in direct proportion to the underlying 
manufacturing processes, such QFs would find themselves at a 
significant and untenable disadvantage--especially with regard to 
deviation from schedule and energy imbalances, as well as other 
associated factors--if PURPA's mandatory purchase obligation were 
lifted in Florida.
    81. In addition to EEI's comments regarding a QF's size as a 
contributor to a lack of nondiscriminatory access, EEI states that it 
would also be appropriate to allow affected QFs in all markets, 
including ``Day 2'' organized markets, to have an opportunity to 
demonstrate that they effectively lack nondiscriminatory access to 
those markets, despite their legal right to such access under an OATT 
where an existing QF \44\ is located in an area in which persistent 
transmission capacity constraints effectively cause the QF to have 
neither physical \45\ nor financial access \46\ to markets outside the 
persistently congested area and there is not a sufficient opportunity 
to relieve the transmission constraint or to sell its output or 
capacity within the area on a short-term and long-term basis because of 
the transmission constraint.
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    \44\ An existing QF is one that is in existence as of the date 
the mandatory purchase obligation is terminated.
    \45\ EEI suggests that for purposes of this exception, a QF is 
prevented from having ``physical access'' outside its congested area 
when the QF is located in a ``generation pocket.'' EEI believes this 
means that during annual system peak conditions, the QF is unable 
(because of transmission congestion) to deliver the power it 
generates that is not consumed by local loads to the remainder of 
the relevant ISO's or RTO's control area, or to other areas if the 
QF is not located in an ISO or RTO control area. EEI concludes the 
geographic area that should be evaluated as a potential ``generation 
pocket'' is the area containing the QF and other generators that 
sufficiently contribute to the congestion on the transmission line, 
as defined by the ISO or RTO in its applicable resource adequacy 
deliverability analysis, if the QF is located in an ISO or RTO 
control area. See, e.g., CAISO Preliminary Deliverability Baseline 
Analysis Study Report, May 3, 2005, Appendix I. In addition, a given 
QF's lack of physical access should be subject to annual review in 
order to determine whether the mandatory purchase obligation should 
continue.
    \46\ EEI states that existing ``Day 2'' organized markets rely 
on LMP and financial transmission rights rather than physical 
transmission rights. Where a financial right exists, a generator 
enjoys access to markets, regardless of whether a physical right 
exists.

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[[Page 64354]]

ii. Commission Determination
    82. While we agree with commenters that there may be factors unique 
to a QF that prevent its nondiscriminatory access to one of the three 
markets described in section 210(m)(1), we do not believe that any 
factor, other than small size, has been shown in this rulemaking to be 
an appropriate basis on which the Commission can establish a rebuttable 
presumption of lack of nondiscriminatory access. Unlike the size 
limitation discussed above, operational characteristics and 
transmission limitations are not susceptible to a clear demarcation for 
purposes of establishing a rebuttable presumption. We do believe, 
however, that by establishing a rebuttable presumption based on size, 
we in effect capture some of the operational issues expressed by 
commenters. Accordingly, the final rule does not establish a rebuttable 
presumption specific to operational characteristics.
    83. However, with respect to the rebuttable presumption that QFs 
larger than 20 MW net capacity in the four listed RTO/ISOs do have 
access to markets, QFs larger than 20 MW may seek to rebut this 
presumption in their response to applications pursuant to section 
210(m)(3) of PURPA and Sec.  292.310 of our regulations. The comments 
suggest that a QF may rebut the presumption by showing, for example, 
one or more of the following factors. Although we do not make any final 
determinations herein as to whether any such factor, standing alone, is 
sufficient to rebut the presumption of market access, we do agree with 
the commenters that these factors are relevant to the question of 
whether the purchase obligation should be terminated and, upon an 
appropriate evidentiary showing, may be sufficient to rebut that 
presumption:
    (A) The QF has certain operational characteristics that effectively 
prevent the QF's participation in a market. Such operational 
characteristics might include, but are not limited to: (a) Highly 
variable thermal and electrical demand (from the QF host) on a daily 
basis, such that the QF cannot participate in a market; or (b) highly 
variable and unpredictable wholesale sales on a daily basis.
    (B) The QF has no access to a mechanism to schedule transmission 
service or make sales in advance on a consistent basis, either because 
of the variability of the QF's electric energy production or because of 
market rules that prevent the QF from scheduling transmission service 
or participating in organized markets. Such operational characteristics 
might include, but are not limited to, dispatchability or some other 
characteristic.
    (C) A QF lacks access to markets due to transmission constraints. A 
QF may show that it is located in an area where persistent transmission 
constraints in effect cause the QF not to have access to markets 
outside a persistently congested area to sell the QF output or 
capacity.
    84. In evaluating transmission constraints, the Commission will 
consider, on a case-by-case basis, among other things, the opportunity 
for QFs, on a nondiscriminatory basis, to obtain transmission upgrades 
to relieve constraints and whether the structure of the relevant market 
provides for the opportunity for the QF to sell notwithstanding the 
constraint.
c. Distribution Level
i. Comments
    85. AWEA and others point out that the problems for QFs connecting 
at the distribution level include: (1) Wheeling charges over 
distribution to reach RTO/ISO markets; (2) costs associated with access 
to the RTO/ISO market; and (3) other costs and procedural barriers that 
can be unilaterally imposed by the distribution utility to deny or 
hinder access to the market.
    86. Many commenters including AWEA, argue that QFs are typically 
located in areas which do not provide direct access to competitive 
wholesale markets, such as RTO/ISO markets. AWEA states that, instead 
such facilities are forced to connect to the distribution market 
operated by competing utilities. AWEA states that utilities and state 
commissions--not FERC or RTOs--control who can interconnect at the 
distribution level and charge costs that are prohibitive for many QFs. 
AWEA states that because QFs cannot reach the RTO/ISO without incurring 
significant costs to interconnect at the distribution level, access is 
typically uneconomic for QFs. AWEA states that accordingly, these QFs 
have no opportunity to sell power in a competitive market. AWEA states 
that there is no way to ensure fair and nondiscriminatory treatment to 
QFs forced to interconnect with a competing utility. NPRA states that a 
competitive market in which the utility baseloads its own generation 
and seeks ``competitive'' solutions for peaking power may not fairly 
accommodate the sale of capacity and energy from non-dispatchable QF 
generating facilities.
    87. Other commenters disagree with the argument that the Commission 
should retain the mandatory purchase obligation for QFs interconnected 
at the distribution level. They argue that whether a QF interconnects 
at the distribution or transmission level is irrelevant because it has 
nondiscriminatory access to competitive markets through open access 
transmission and interconnection services. Central Vermont and Southern 
California Edison Company (SCE) state that under Order Nos. 2003-C and 
2006-A all of the utility's facilities, including its distribution 
facilities, that are used to implement a sale for resale or to transmit 
electricity in interstate commerce are subject to the nondiscriminatory 
requirements of the utility's OATT. In addition, EEI and SCE state that 
QFs may take advantage of the interconnection provisions of section 210 
of the FPA, under which they can obtain services at Commission-
determined rates, terms and conditions. Also, EEI points out that 
section 1.11 of the pro forma OATT makes clear that a generator 
interconnected at the distribution level is entitled to request 
transmission service under the OATT.
    88. PJM states that regardless of whether a resource interconnects 
at the transmission or distribution level, it is entitled in PJM to 
obtain interconnection service and open-access delivery service. SCE 
argues that if the Commission does not adopt a generic finding that 
generators have open access on a nondiscriminatory basis to the local 
distribution facilities of all Commission-regulated utilities, there is 
support for such a finding as to the State of California, given the 
existence of Wholesale Distribution Access Tariffs
ii. Commission Determination
    89. The connection of a QF to distribution-level facilities can 
present two different issues: (i) Whether the utility owning the 
distribution facilities will permit the QF to have access to markets 
and (ii) if that access is granted, whether any associated distribution 
charges are sufficient to negate that access for purposes of applying 
section 210(m). As to the first question, we agree that a denial of 
actual access to distribution facilities for purposes of selling power 
into the wholesale market would constitute sufficient evidence to find 
that section 210(m) has not been satisfied (and hence to retain the 
mandatory purchase obligation). We recognize that open access 
transmission service, adopted in Order No. 888,\47\ and interconnection 
rules, adopted in Order Nos. 2003 \48\ and 2006,\49\ are designed to 
eliminate undue discrimination in the

[[Page 64355]]

provision of transmission and interconnection services but do not 
address certain distribution level issues. Indeed, the Commission does 
not have jurisdiction over all distribution level facilities,\50\ and 
thus QFs interconnected to those facilities face access issues that are 
different from the access issues that are faced by QFs interconnected 
directly to RTO/ISO facilities.\51\ Although we do not believe the 
record supports any generic findings that QFs interconnected at a 
distribution level do not have non-discriminatory access to markets, a 
QF may be able to show, based on its specific circumstances, that it 
does not have such access to markets as a result of not being able to 
obtain non-discriminatory access to distribution facilities. Thus, for 
purposes of the rebuttable presumption that QFs above 20 MWs in the 
four ISOs/RTOs (ISO-NE, NYISO, PJM and Midwest ISO) have non-
discriminatory access to markets, QFs may be able to rebut the 
presumption by, e.g., demonstrating a denial of actual access to 
distribution facilities for the purposes of selling power to the 
wholesale market. Moreover, we note that, for small QFs (many of whom 
may be connected at distribution level), the utility must also overcome 
the rebuttable presumption that such small QFs do not have sufficient 
access to markets to satisfy section 210(m).
---------------------------------------------------------------------------

    \47\ Supra note 32.
    \48\ Supra note 33.
    \49\ Supra note 34.
    \50\ See, e.g., PJM Interconnection, LLC, 114 FERC ] 61,191, 
order on reh'g, 116 FERC ] 61,102 (2006).
    \51\ The Small Generator Interconnection Procedures (SGIP) and 
the Small Generator Interconnection Agreement (SGIA) outlined in 
Orders Nos. 2006 and 2006-A, include separate definitions for 
``Transmission System'' and ``Distribution System'' to account for 
the distinct engineering and cost allocation implications of an 
interconnection with a Distribution System. Order No. 2006 states 
that use of the term ``Distribution System'' has nothing to do with 
whether the facility is under this Commission's jurisdiction; some 
``distribution'' facilities are under our jurisdiction and others 
are ``local distribution facilities'' subject to state jurisdiction. 
Further Order No. 2006 applies only to interconnections to 
facilities that are already subject to a jurisdictional OATT at the 
time the interconnection request is made and that will be used for 
purposes of jurisdictional wholesale sales. Order No. 2006 explains 
that because of this limited applicability, and because the majority 
of small generators interconnect with facilities that are not 
subject to an OATT, Order No. 2006 will not apply to most small 
generator interconnections. See Order No. 2006 at P 6, 7 and 8.
---------------------------------------------------------------------------

    90. With respect to the second issue, we find that the imposition 
of a charge for access to the distribution system does not mean that 
the QF does not have ``access'' to competitive markets. A QF wishing to 
access competitive markets is expected to pay the reasonable charges, 
whether for transmission or distribution facilities, that are 
associated with such action. There is nothing in section 210(m) that 
suggests otherwise. Thus, the requirement to pay an interconnection 
charge, transmission charge, or distribution charge, in and of itself, 
is not an indication that a QF does not have nondiscriminatory access 
to a market.
4. Burden of Proof
a. NOPR
    91. In the NOPR, the Commission proposed to make generic findings 
that certain markets satisfy the conditions of section 210(m)(1)(A). In 
addition, the Commission proposed to create a rebuttable presumption 
that the Order No. 888 OATT provides nondiscriminatory access to 
markets.
b. Comments
    92. American Chemistry Council, Caithness, American Forest & Paper, 
CCC, CIBO, Occidental, PIOs, Dow, and ELCON argue that the burden of 
establishing that the section 210(m) criteria are met is placed 
squarely on the electric utility seeking relief from the must purchase 
requirement. Several of these commenters argue that the Commission 
erred in making generic determinations for section 210(m)(1)(A). All of 
these commenters argue that section 210(m)(3) shows Congressional 
intent that electric utilities can be relieved only after careful 
consideration on a utility-specific service territory basis--not on a 
broader region-wide basis. ELCON and many others claim that the 
Commission has a statutory obligation to make facility-specific 
determinations that nondiscriminatory access to long-term markets truly 
exists. Industrial Energy Consumers add that the statute requires that 
the utility make a specific showing, supported by evidence, about the 
existence of and nondiscriminatory access to long-term markets. ELCON 
and others contend that the statute does not provide the Commission 
with the discretion or legal authority to abandon this QF-level 
analysis in favor of a generic analysis. Granite State is concerned 
that a generic finding will adversely affect small developers because 
they would not receive actual notice of the elimination of the 
mandatory purchase requirement.
    93. The CCC argues that section 210(m) requires utilities to make 
principal showings demonstrating that market conditions justifying 
removal of the mandatory purchase requirement exist. It states that QFs 
then have the ability to rebut the utilities' presentations. The CCC 
states that the NOPR turns this scheme on its head by making initial, 
unsupported conclusions regarding the existence of market opportunities 
for QFs without any utility submission or evidence, and then shifting 
the burden to QFs to rebut the NOPR's conclusions.
    94. CIBO argue that placing the burden on industrial QFs is 
arbitrary, because industrial QFs generally lack the resources and 
Commission regulatory expertise to participate in litigation before the 
Commission. In addition, it argues that such a shifting of the burden 
of proof is contrary to 5 U.S.C. 556(d) and contrary to the structure 
of section 1253, which envisions that the Commission will act on 
applications submitted by the utility and supported by a demonstration 
made by the utility. Finally, the Council argues that it creates a 
disincentive for its members and other industrial QFs, who generally 
lack the resources and regulatory expertise to bear that burden.
    95. Occidental adds that section 210(m)(3) provides the single 
mechanism by which an electric utility can eliminate its mandatory 
purchase requirement. It argues that the statute does not permit the 
Commission to relieve the applicants' burden to demonstrate the 
``factual basis'' of their requested relief by rulemaking.
    96. EEI states in its reply comments that it strongly believes the 
four RTO/ISOs provide nondiscriminatory access to all generators, 
operate competitive wholesale markets meeting the criteria in section 
210(m)(1)(A)(i), and afford opportunities for long-term sales of 
capacity and energy within the meaning of section 210(m)(1)(A)(ii). EEI 
states that the Commission is correct to make generic findings 
regarding these markets. EEI states that to do otherwise would compel 
the Commission to re-litigate the same issues time and time again to 
reach the identical determination.
    97. EEI states that only QFs will have the evidence necessary to 
demonstrate that they, in fact, lack access and thereby to rebut the 
presumption and that the Commission is not reversing the burden of 
proof, but placing it where it belongs. EEI states that the opportunity 
to rebut this presumption generally will be available to QFs in their 
comments to applications for relief filed pursuant to section 
210(m)(3).
c. Commission Determination
    98. Commenters, in response to the NOPR's proposal to find that the 
markets of the four RTO/ISOs satisfy section 210(m)(1)(A), raise 
essentially the same issue from two different perspectives: (1) The 
Commission's authority to make generic findings; and (2) section 
210(m)(3) places the burden

[[Page 64356]]

of proof on the electric utility, not the QF.
    99. We have previously discussed the rebuttable presumptions being 
adopted herein--in favor of electric utilities with respect to 
``large'' QFs in the four organized markets and in favor of ``small'' 
QFs in all markets. Several parties challenge our ability to make any 
such determinations on a generic basis in this rulemaking. We disagree. 
First, we have broad discretion to adopt generic policy or make generic 
findings through either rulemaking or adjudication.\52\ We believe 
doing so through this rulemaking provides all affected entities--
including both utilities and QFs--a reasonable opportunity to be heard 
on common issues that arise in various market structures and for 
classes of QFs. It makes little sense to adopt such generic 
determinations in the first case to present them, thereby effectively 
denying the vast majority of utilities and QFs the ability to comment 
on those policies or findings before they are adopted for the first 
time. To some extent, generic findings about certain aspects of ``Day 
2'' markets are inevitable, either by rulemaking or in the first 
utility specific filing in each ``Day 2'' market. Making generic 
findings by rulemaking provides affected QFs better notice.
    100. Second, we are not persuaded that the issues relevant to the 
findings and rebuttable presumptions we adopt here vary so 
significantly in each case that they must be resolved only on a case-
by-case basis. For example, the issue of whether the four ``Day 2'' 
markets satisfy section 210(m)(1)(A) is one that can be resolved 
generically. We find no merit in the contention that we should 
relitigate that issue hundreds of times for every QF located in ``Day 
2'' organized markets. Our approach here is consistent with the 
language of the statute. Section 210(m)(1)(B) provides for the 
submission of ``evidence of transactions within the relevant market.'' 
Because this language is not included in section 210(m)(1)(A), our 
approach providing for findings and rebuttable presumptions is 
consistent with the statute. Finally, we note that, unlike the NOPR, we 
are only establishing rebuttable presumptions of access to markets, not 
final determinations. These rebuttable presumptions are not only 
reasonable because they address common, recurring issues, but also will 
permit better processing of applications under the compressed 90-day 
timeframe required by statute.\53\
---------------------------------------------------------------------------

    \52\ See SEC v. Chenery, 332 U.S. 194, 202-03, reh'g denied, 332 
U.S. 747 (1947).
    \53\ We note in this regard that section 210(m) of PURPA 
requires the Commission to act on an application, within 90 days of 
such application, ``after notice * * * and an opportunity for 
comment.'' This contrasts with the requirement of sections 205 and 
206 of the FPA that the Commission act after a ``hearing,'' not just 
after an opportunity to comment. See 16 U.S.C. 824d, e.
---------------------------------------------------------------------------

    101. We also note that certain QFs recognize our authority to make 
generic findings. PIOs implicitly acknowledge the Commission's 
authority to make generic findings in supplemental comments filed on 
August 25, 2006. In those comments, PIOs urged the Commission to find 
that certain classes of QFs should retain the right to require electric 
utility purchases regardless of the state of the markets on the ground 
that certain classes of QFs lack access to markets.
    102. As noted, while the Commission is making a finding in this 
rulemaking that four markets satisfy the market criteria of section 
210(m)(1)(A) of PURPA, and is establishing a rebuttable presumption 
that QFs above 20 MWs have nondiscriminatory access to those markets, 
electric utilities within those markets will nevertheless have to file 
an application pursuant to our regulations implementing section 
210(m)(3) of PURPA, that is pursuant to section 292.310 of the 
Commission's regulations, for relief from the requirement to enter into 
new contracts or obligations with QFs. An electric utility member of 
one of these four RTO/ISOs filing for relief from the obligation to 
purchase will need to refer to this finding in the Final Rule as part 
of its application. When it files for relief from the purchase 
obligation it must also submit information about transmission 
constraints within its service territory in order to give potentially 
affected QFs information that may be relevant to rebutting the 
presumption that they have access to all aspects of the applicable 
``Day 2'' market. A QF 20 MW or smaller located within the Midwest ISO, 
PJM, ISO-NE, and NYISO will be presumed not to have nondiscriminatory 
access to these wholesale markets.\54\ A QF larger than 20 MW located 
within the Midwest ISO, PJM, ISO-NE, and NYISO will be presumed to have 
nondiscriminatory access to these wholesale markets. A QF larger than 
20 MW may rebut that presumption by showing that it in fact lacks 
access.
---------------------------------------------------------------------------

    \54\ The electric utility would have to make additional showings 
if it wished to rebut the presumption that small QFs do not have 
nondiscriminatory access to its region's Day 2 wholesale markets, 
and to long term capacity and energy markets.
---------------------------------------------------------------------------

    103. A similar process will be used in cases for utilities located 
in ``Day 1'' or other markets. However, in those markets, other than 
ERCOT, there will be no presumption that a market that satisfies 
section 210(m)(1)(B) or (C) criteria for termination of the purchase 
obligation exists. The utility seeking relief will have to make that 
showing. In addition to providing evidence that such markets satisfy 
the criteria of subsections (B) and (C) generally, a utility will have 
to submit evidence sufficient to overcome the presumption that a QF of 
20 MWs net capacity or below does not have nondiscriminatory access to 
those markets. Further, as indicated, there will be no presumption 
regarding QFs above 20 MWs for markets covered by sections 210(m)(1)(B) 
and (C).
    104. The result of this procedural process is that, before the 
Commission relieves an electric utility of its requirement to enter 
into a new contract or obligation to purchase electric energy from any 
QF, the Commission will have made a facility-specific determination 
that the QF has nondiscriminatory access to a section 210(m)(1)(A), (B) 
or (C) market. It is true that the process utilizes certain rebuttable 
presumptions. But as discussed above, we believe that there is a 
reasonable basis for the presumptions we are establishing, and we 
stress that all of the presumptions being established are rebuttable. 
We also believe that the use of the presumptions will assist the 
parties--QFs as well as electric utilities--and the Commission to more 
readily process applications for termination of the purchase 
requirement consistent with the statute and within the 90-day timeframe 
required by section 210(m)(1)(3) of PURPA. Finally, we recognize 
concerns that QFs may not have access to the level of information that 
electric utilities have and that some QFs lack the resources and 
expertise to participate in Commission litigation. The creation of the 
rebuttable presumption in favor of small QFs, as well as the 
information requirements we are imposing on electric utilities as part 
of their applications, should help QFs in this regard. Thus, we believe 
that the procedures we are creating for processing applications to 
terminate the requirement that an electric utility purchase electric 
energy from a QF are consistent with the requirement in section 
210(m)(3) of PURPA that: (1) QFs be given sufficient notice; (2) a 
utility set forth the factual basis on which relief is requested; and 
(3) a utility describe why the conditions set

[[Page 64357]]

for in sections 210(m)(1)(A), (B) or (C) have been met.
    105. As to the arguments that QFs do not have sufficient notice of 
the Commission's generic conclusions, we disagree. As indicated above, 
these parties have it backwards. We are providing greater, not lesser, 
notice of our conclusions regarding these issues by addressing them in 
a proposed rulemaking, rather than in individual adjudications. 
Moreover, every potentially affected QF will be given notice of the 
proceedings filed under Sec.  292.310 of our regulations and will, in 
those proceedings, have the opportunity to rebut the generic findings 
made in this Final Rule.

B. Section 210(m)(1)(A) of PURPA

1. Midwest ISO, PJM, ISO-NE, and NYISO
a. NOPR
    106. Section 210(m)(1)(A) of PURPA requires the Commission to 
terminate an electric utility's obligation to purchase from QFs if QFs 
have nondiscriminatory access to (i) independently administered, 
auction-based, day-ahead and real-time wholesale markets for the sale 
of electric energy; and (ii) wholesale markets for long-term sales of 
capacity and electric energy.
    107. In the NOPR, the Commission interpreted section 210(m)(1)(A) 
to apply in regions in which ISOs and RTOs administer day-ahead and 
real-time markets, and bilateral long-term contracts for the sale of 
capacity and electric energy are available to participants/QFs in these 
markets. These are commonly known as ``Day 2'' RTO/ISOs. The Commission 
proposed to find that the Midwest ISO, PJM, ISO-NE, and NYISO satisfy 
the requirements of section 210(m)(1)(A).\55\ The Commission stated in 
the NOPR that these entities are Commission approved ISOs or RTOs that 
provide nondiscriminatory open access transmission services and 
independently administer auction-based wholesale markets for day-ahead 
and real-time energy sales. The Commission stated in the NOPR that 
additionally, with respect to subparagraph (A)(ii), the existence of 
bilateral long-term contracts for long-term sales of capacity and 
energy indicates that there is a market. The Commission stated that it 
is reasonable to conclude that the second prong of section 210(m)(1)(A) 
is met because bilateral long-term contracts are available to 
participants in the footprints of the Midwest ISO, PJM, ISO-NE, and 
NYISO. Therefore, the Commission proposed to find that electric 
utilities that are members of the Midwest ISO, PJM, ISO-NE, and NYISO 
would meet the requirements for relief from the mandatory purchase 
requirement.\56\
---------------------------------------------------------------------------

    \55\ In the NOPR the Commission noted that while SPP and the 
CAISO, respectively are a Commission-approved RTO and ISO, they do 
not satisfy the requirements of section 210(m)(1)(A) because neither 
has day-ahead markets. The Commission stated, however, that any 
utility within SPP and CAISO may file an application with the 
Commission to seek relief from the mandatory purchase requirement 
under section 210(m)(1)(B) or (C), on a case-by-case basis.
    \56\ NOPR at P 22.
---------------------------------------------------------------------------

b. Comments
    108. The American Chemistry Council, American Energy, American 
Forest & Paper, CCC, and Midwest Transmission Customers disagree with 
the Commission's finding and argue that Midwest ISO, PJM, ISO-NE, and 
NYISO do not meet section 210(m)(1)(A). Several commenters argue that 
the Commission's proposed findings with respect to the Midwest ISO, 
PJM, ISO-NE, and NYISO markets are insufficiently supported by record 
evidence. In addition, the American Chemistry Council and CCC argue 
that these markets are premature.
    109. Wisconsin Industrial Energy Group, Inc. argues that the 
Commission's proposed findings with respect to Midwest ISO are 
premature because a viable competive market does not exist in the 
Midwest ISO footprint and because QF owners and operators do not have 
nondiscriminatory access to the Midwest ISO market. Midwest 
Transmission Customers argue that Midwest ISO markets are still not 
sufficiently mature to justify the Commission terminating the PURPA 
purchase obligation in Midwest ISO. The American Chemistry Council and 
CCC argue that there is no evidentiary basis that shows bilateral 
contracts for long-term sales of capacity are available to QFs on a 
nondiscriminatory basis or that there is a ``market'' for such 
contracts. These commenters argue that the NOPR offers no qualitative 
analysis of the bilateral markets that are presumed to exist. ELCON 
argues that a QF-specific review would establish that, in many cases, 
QFs do not have nondiscriminatory access to long-term bilateral markets 
whether in RTOs or otherwise. ELCON states that considerable evidence 
establishes that markets either are in their infancy (e.g., Midwest 
ISO), or are not functioning vis-a-vis long-term sales of capacity or 
energy. ELCON states that it will be difficult for the Commission to 
sustain on judicial review a generic finding that ISOs and RTOs offer 
long-term markets for power when the Commission's own recent rulemaking 
announcing financial transmission rights (FTRs) is predicated on the 
need for FTRs to jump start long-term power markets specifically in 
regions with ISOs and RTOs. ELCON takes issue with the assertion that 
PJM operates an open, competitive market, citing the State of Delaware 
as an example. ELCON states that according to a recent report by the 
Delaware Cabinet Committee on Energy, competitive markets are not 
working in Delaware.\57\
---------------------------------------------------------------------------

    \57\ ELCON's August 25, 2006 Supplemental Comments at 8-9.
---------------------------------------------------------------------------

    110. Deere & Company (Deere) states that open access transmission 
service presumes the existence of bilateral sale and purchase parties 
separate from the transmitting utility, with the transmitting utility 
providing the transmission service to either the seller or the buyer. 
Deere states that that does not mean that there is nondiscriminatory 
access to the long-term sale and purchase market. Deere states that one 
buyer for all long-term sellers in a market would mean that there is a 
monopsony, and through the exercise by the single buyer of its 
monopsony ``market power,'' manifested in the form of a refusal to 
deal, a new seller would not have any access to the long-term sale and 
purchase market.
    111. Caithness argues that sections 210(m)(1)(A) and (B) both 
require that there be markets for long-term wholesale sales of energy 
and capacity before the must-purchase requirement can be terminated. 
The American Chemistry Council argues that in trying to make sense of 
the fact that section 210(m)(1)(B) contains a directive to ``consider 
evidence of transactions in the relevant market,'' while section 
210(m)(1)(A) contains no such directive, the Commission's proposed 
interpretation effectively reads an essential element of section 
210(m)(1)(A)--namely, the existence of ``wholesale markets for long-
term sales of capacity and electric energy''--out of the statute. The 
American Chemistry Council states that for this reason, the 
Commission's proposed interpretation contravenes the clear language of 
section 210(m)(1)(A).
    112. American Forest & Paper states that bilateral contracts have 
always existed, but the Commission has never determined that the mere 
existence of bilateral contracts constituted a market, particularly, 
where those contracts are mostly between utilities and their 
affiliates.

[[Page 64358]]

    113. The CCC states that the Commission must require an affirmative 
showing that buyers other than the utility are willing to purchase QF 
energy and capacity on a short-term and long-term basis, including 
through long-term purchases of capacity before the purchase obligation 
is lifted.
    114. EEI, PJM, Constellation, Exelon, FirstEnergy, Montana-Dakota, 
National Grid, PJM Transmission Owners, and PPL support the 
Commission's preliminary finding that QFs interconnected with utilities 
that are members of the Midwest ISO, PJM, ISO-NE and NYISO have 
nondiscriminatory access to those markets and that those markets 
readily satisfy the section 210(m)(1)(A) criteria for removing the 
PURPA section 210 purchase obligation. EEI states that additional 
evidence of the scope of market opportunities for QFs is seen in the 
increasing number of QFs filing for authority to sell at market-based 
rates in response to the Commission's recent Order No. 671.\58\ EEI 
states that the QF's argument against the Commission's proposal in 
essence is that markets must assure QFs will receive the same amount of 
revenues that they would receive from mandatory utility sales at 
avoided cost rates before the mandatory purchase requirement may be 
lifted. Exelon believes that the PJM markets are effective and offer 
nondiscriminatory opportunities for QFs and small power producers to 
sell their output to entities other than the interconnecting utility. 
To facilitate these small generators participating in the RTO markets 
in the absence of a mandatory purchase requirement, Exelon suggests 
that the Commission encourage utilities to work with the QFs and small 
power producers that qualify under state renewable resource programs to 
develop and implement a voluntary standard offer contract.
---------------------------------------------------------------------------

    \58\ Supra note 15.
---------------------------------------------------------------------------

    115. EEI, PJM, Constellation, Exelon, FirstEnergy, Montana-Dakota, 
National Grid, PJM Transmission Owners, and PPL also support the NOPR's 
finding regarding bilateral contracts for long-term sales of energy and 
capacity. PJM states that the Commission reasonably concludes that the 
existence of organized and transparent competitive markets for capacity 
and energy provide a platform for the development of competitive 
bilateral contracts in satisfaction of section 210(m)(1)A(ii) of EPAct 
2005. EEI states that the test of section 210(m)(1)(A)(ii) can be and 
is met by markets that provide opportunities for long term sales 
pursuant to bilateral transactions--markets which flourish in all the 
``Day 2'' RTOs.
c. Commission Determination
    116. Under section 210(m)(1)(A), the Commission must terminate the 
requirement that an electric utility enter a new contract or obligation 
to purchase electric energy from a QF if the QF has nondiscriminatory 
access to (i) independently administered, auction-based day-ahead and 
real-time wholesale markets for the sale of electric energy; and (ii) 
wholesale markets for long-term sales of capacity and electric energy.
    117. We find that the Midwest ISO, PJM, ISO-NE, and NYISO satisfy 
section 210(m)(1)(A)(i) because the markets administered by these RTO/
ISOs are, as required by subparagraph (A)(i), independently 
administered, auction-based day-ahead and real-time wholesale markets 
for the sale of electric energy. With respect to section 
210(m)(1)(A)(ii) and the requirement for wholesale markets for long-
term sales of capacity and electric energy, we find that, as proposed 
in the NOPR, the existence of bilateral long-term contracts for long-
term sales of capacity and energy is a sufficient indication of a 
market. As the Commission explained in the NOPR, it is reasonable to 
conclude that subparagraph (A)(ii) is met because bilateral long-term 
contracts are available to participants in the footprints of the 
Midwest ISO, PJM, ISO-NE, and NYISO. Although there is no formalized 
market for such long-term contracts, nothing in the statute requires 
such an organized market. Rather, the only requirement for organized 
markets relates to subparagraph A(i), and the requirement that there be 
auction-based day-ahead and real-time markets.
    118. We disagree with those who argue that because these markets 
are premature or in their infancy, the Commission cannot relieve 
utilities of the purchase obligations. The relevant issue under the 
statute is whether these markets satisfy the requirements enumerated 
above, not whether they are ``perfect'' today or are undergoing reforms 
as they develop. Again, nothing in the statutory language suggests such 
a test, nor have its proponents provided us with any clear demarcation 
to determine when such a market is too ``premature'' to qualify under 
section 210(m)(A). Further, we note that the Midwest ISO has been an 
RTO since 2001 and began ``Day 2'' operations (i.e., auction-based, 
day-ahead markets) in 2005. PJM has been an RTO since 2001 and began 
``Day 2'' operations in 2000. ISO-NE has been an RTO since 2004 and 
began ``Day 2'' operations in 2003. NYISO has been an ISO since 1998 
and began ``Day 2'' operations in 1999. These RTOs and ISOs are 
established and operate ``Day 2'' wholesale markets, as required by 
subparagraph (A)(i), in their respective regions.
    119. CCC and the American Chemistry Council argue that the 
Commission's proposed findings with respect to the Midwest ISO, PJM, 
ISO-NE, and NYISO markets are insufficiently supported by record 
evidence. We find this argument without merit. The day ahead and real 
time markets are precisely those contemplated by the words of section 
210(m)(A)(i) and, indeed, there is no real dispute that they are 
Commission approved independently administered entities,\59\ and that 
they operate auction-based day-ahead and real-time wholesale markets 
for the sale of electric energy as represented pursuant to their 
respective, Commission approved, tariffs.\60\
---------------------------------------------------------------------------

    \59\ See Midwest Independent Transmission System Operator, Inc., 
97 FERC ] 61,326 (2001) order on reh'g, 103 FERC ] 61,169 (2003); 
PJM Interconnection, L.L.C., 96 FERC ] 61,061 (2001). On December 
20, 2002, in PJM Interconnection, L.L.C., 101 FERC ] 61,345 (2002), 
PJM was granted full, rather than provisional, RTO status. 
Independence was one of the matters considered in the 2002 Order; 
ISO New England, Inc., 106 FERC ] 61,280 (2004); Central Hudson Gas 
& Electric Co., 83 FERC ] 61,352 (1998), order on reh'g, 87 FERC ] 
61,135 (1999).
    \60\ See Midwest Independent Transmission System Operator, Inc., 
108 FERC ] 61,163 (Midwest ISO, FERC Electric Tariff, Third Revised 
Volume No. 1, Module C), order on reh'g, 109 FERC ] 61,157 (2004), 
order on reh'g, 111 FERC ] 61,043 (2005), PJM Interconnection, 
L.L.C., FERC Electric Tariff, Sixth Revised Volume No. 1; New York 
Independent System Operator, Inc., FERC Electric Tariff Original 
Volume No. 2.
---------------------------------------------------------------------------

    120. With respect to bilateral markets in these ISOs/RTOs, i.e., 
section 210(m)(A)(ii), no party argues that long-term contracts do not 
exist in these markets or that QFs are precluded from entering into 
them with willing buyers.\61\ The transmission access offered by RTOs 
allows suppliers (including QFs) the opportunity to enter into long-
term bilateral contracts in a competitive wholesale market. RTOs have 
no incentive to favor one set of suppliers over others in providing 
transmission access. RTO footprints encompass many different wholesale 
buyers, thus proving significant opportunity for sellers to reach many 
different wholesale buyers. In addition, the organized markets operated 
by RTOs facilitate long-term bilateral contracts between sellers 
(including qualifying

[[Page 64359]]

facilities) and wholesale buyers. First, organized markets provide 
transparent spot energy prices that can serve as a reference in 
negotiating longer term contract prices. Second, organized markets 
reduce the costs to suppliers of making long-term bilateral supply 
commitments. That is because whenever a supplier is unable to produce 
the energy required under the bilateral contract (for example, because 
of an outage), the supplier can easily acquire replacement energy from 
the organized market at a transparent and competitive price. Moreover, 
even when the supplier is physically capable of producing its 
contractually-required energy, the supplier can acquire the energy from 
the RTO's market whenever it is cheaper to do so. Both of these factors 
reduce the cost to a supplier of entering into a long-term bilateral 
contract. Furthermore, our approach is consistent with the language of 
section 210(m)(1)(A)(ii). As discussed above, section 210(m)(1)(B) 
provides for the submission of ``evidence of transactions within the 
relevant market.'' Because this language is not included in section 
210(m)(1)(A), our finding with respect to section 210(m)(1)(A)(ii) is 
consistent with the statute. We, therefore, find it reasonable to 
conclude that Day 2 markets provide an opportunity to make long-term 
sales of capacity and electric energy and meet the criteria of section 
210(m)(1)(A)(ii) as well as section 210(m)(1)(A)(i).
---------------------------------------------------------------------------

    \61\ We also know from electric quarterly report (EQR) filings 
by public utilities that there are long-term contracts for long-term 
sales of capacity and energy in each of the markets; those data are 
available on the Commissions Web site. http://www.ferc.gov/docs-filing/eqr/data.asp
.

---------------------------------------------------------------------------

    121. As to ELCON's citation to a study by the State of Delaware 
finding that competitive electric energy markets are not working well 
in Delaware, we find it inapposite. The issue under the statute is not 
whether these organized markets are perfect or, alternatively, could be 
improved. As we stated above, all that is required by section 
210(m)(A)(ii) is the presence of ``wholesale markets for long-term 
sales of capacity and electric energy.'' The Delaware report does not 
demonstrate that such a market does not exist.
2. Whether Membership in an RTO/ISO Is Necessary To Invoke the 
Rebuttable Presumption of Access to ``Day 2'' Markets
a. NOPR
    122. In the NOPR, the Commission concluded that QFs interconnected 
with electric utilities that are members of Midwest ISO, PJM, ISO-NE, 
and NYISO have nondiscriminatory access to markets described in section 
210(m)(1)(A).
b. Comments
    123. Missouri River Energy Services (MRES), a municipal, and the 
NRECA seek clarification as to which entities are eligible for the 
exemption from the mandatory purchase requirement. For example, MRES 
states that not all entities within the Midwest ISO footprint are 
transmission-owning electric utility members of Midwest ISO. MRES 
states that it is currently a market participant in the Midwest ISO, 
but not a member. MRES states that in addition, MRES has assumed the 
section 210 mandatory purchase requirement on behalf of its members, 
many of which are located within the Midwest ISO footprint.
    124. Progress states that while a case-by-case analysis may be 
appropriate, it believes that utilities such as CP&L, that have 
Commission-approved OATTs and are adjacent to and directly connected 
with a ``Day 2'' RTO (such as PJM), should obtain a rebuttable 
presumption that the second prong of the test is met. Progress states 
that there is no difference between a QF located within PJM and a QF 
located within CP&L's service territory with respect to access to 
short-term and long-term capacity and energy wholesale markets.
c. Commission Determination
    125. The statute is clear that the obligation to purchase and thus 
relief of the obligation resides with the electric utility. For 
purposes of establishing a rebuttable presumption that QFs 
interconnected with certain utilities have access to ``Day 2'' markets, 
we think that a reasonable line to draw is with the member utilities of 
the ``Day 2'' RTO/ISOs. These utilities have turned over the operation 
of their transmission facilities to an independent entity that has no 
stake in the marketplace and will ensure that all users of the 
transmission system are treated on a nondiscriminatory basis and are 
provided access to markets. We recognize that other electric utilities 
may provide nondiscriminatory access to the ``Day 2'' markets. But for 
purposes of applying a rebuttable presumption that QFs have 
nondiscriminatory access to the ``Day 2'' markets, we believe that it 
is reasonable to draw the line with members of the Midwest ISO, PJM, 
ISO-NE, or NYISO. Nevertheless, entities that are not members of the 
Midwest ISO, PJM, ISO-NE, or NYISO may seek relief from the purchase 
obligation pursuant to either section 210(m)(1)(B) or (C) pursuant to 
the procedures contained in Sec.  292.310 of the Commission's 
regulations. Such applications will be reviewed on an electric utility-
by-electric utility basis pursuant to the procedures contained in Sec.  
292.310 of the Commission's regulations. A utility making such an 
application will have the burden of showing that all elements necessary 
for granting relief exist.
3. Compliance Filing
a. NOPR
    126. The Commission proposed that to claim relief from the purchase 
obligation, electric utilities that are members of Midwest ISO, PJM, 
ISO-NE, and NYISO will need to make compliance filings pursuant to 
section 210(m)(3).
b. Comments
    127. AEP and PJM Transmission Owners argue that the Commission 
should remove the obligation to require a compliance filing for 
utilities located in one of the exempted RTO/ISOs. PJM Transmission 
Owners argue that it is not apparent that Congress intended the 
Commission only to grant relief from such mandatory purchase 
requirements upon receipt of an application. AEP and PJM Transmission 
Owners contend there is nothing prohibiting the Commission from 
granting blanket relief for all electric utilities in a particular RTO/
ISO that meets the requirements of section 210(m). PJM Transmission 
Owners request, if compliance filings are ultimately required, to be 
allowed to make one filing on behalf of all the electric utilities in 
PJM.
    128. EEI states that, instead of compliance filings by utilities 
located within the four ``Day 2'' markets, the Commission may wish to 
require utilities to apply for relief from the mandatory purchase 
requirement, in accordance with section 210(m)(3) of PURPA. EEI states 
that utilities applying for relief would be entitled to rely on generic 
Commission findings (as the Commission has proposed in the NOPR) that 
the four ``Day 2'' markets meet the tests established in section 
210(m)(1)(A) and that a Commission-approved OATT is evidence of 
nondiscriminatory access to these markets under section 210(m)(1).
c. Commission Determination
    129. In light of the comments filed, we conclude that utilities in 
``Day 2'' RTO/ISO markets should file applications pursuant to section 
210(m)(3), instead of the ``compliance filings'' proposed in the NOPR. 
We believe that this will be more consistent with the statute than the 
compliance filings proposed in the NOPR. In the section 210(m)(3) 
application, a utility within a ``Day 2'' RTO/ISO will be required to: 
(a) Show that it is a member of a ``Day 2'' RTO; (b) provide 
information to enable QFs larger than 20 MW to seek to rebut the 
presumption

[[Page 64360]]

that they have nondiscriminatory access to the market; such information 
will be a description of transmission constraints not otherwise 
publicly available, and if publicly available, provide a specific link 
to such information; and (c) provide a list of affected interconnected 
QFs. With respect to the section 210(m)(A) ``Day 2'' RTO/ISO markets, 
these applications, in conjunction with the generic findings and 
rebuttable presumptions adopted in this Final Rule and discussed 
elsewhere, will allow us to timely and fairly process applications 
within the 90-day time period intended by Congress.

C. Section 210(m)(1)(B)

1. Definition of ``Regional'' for Purposes of Section 210(m)(1)(B)(i)
a. NOPR
    130. Section 210(m)(1)(B) requires the Commission to make a 
finding, among other things, that a QF has nondiscriminatory access to 
transmission and interconnection services provided by a Commission-
approved ``regional transmission entity.'' In the NOPR, the Commission 
noted that amended section 210 does not contain any express definition 
of ``regional transmission entity.'' The Commission therefore explained 
in the NOPR that we have discretion in interpreting section 
210(m)(1)(B)(i) to deem an entity to be ``regional.'' The Commission 
listed factors, such as sufficient regional scope or configuration of 
the multiple discrete transmission systems the regional transmission 
entity controls, to be considered when determining a ``regional 
transmission entity.'' \62\
---------------------------------------------------------------------------

    \62\ NOPR at P 16.
---------------------------------------------------------------------------

b. Comments
    131. American Forest & Paper, LEUG, and NISCO offer suggestions as 
to how the Commission should define ``regional'' as it is used in 
section 210(m)(1)(B). LEUG suggests that the Commission should use a 
similar standard in defining the term ``regional'' as it's used in 
Order No. 2000. American Forest & Paper believes that the Commission 
should exercise the discretion it has under section 210 in conformance 
with its observations, concerns and findings regarding the scope and 
independence of RTOs and ISOs necessary to assure nondiscriminatory 
access and independence. American Forest & Paper states that the 
Commission has extensive jurisprudence regarding its concerns 
surrounding the scope and the level of independence necessary to assure 
nondiscriminatory and independent administration, and should rely on 
this existing body of precedent when making determinations pursuant to 
newly enacted section 210(m). Occidental argued that the NOPR 
incorrectly suggests that the Commission has discretion to deem an 
entity to be a ``Commission-approved regional transmission entity'' 
solely in the context of a determination that the QF is provided 
nondiscriminatory access in accordance with section 210(m)(1)(B)(i). It 
requests the Commission to clarify, at a minimum, that ``Commission-
approved regional transmission entity'' does not include stand-alone 
electric utilities or Entergy's ICT.
c. Commission Determination
    132. In determining whether a transmission entity is ``regional,'' 
we will not rely solely on the ``scope and regional configuration'' 
standard as discussed in Order No. 2000 as one commenter suggests. 
Section 210(m)(1)(B) does not tie ``regional'' to Order No. 2000 but 
rather leaves to the Commission's discretion whether to deem an entity 
``regional'' and we will make that determination on a case-by-case 
basis in response to applications filed by electric utilities pursuant 
to Sec.  292.310 of the Commission's regulations. Accordingly, we will 
not make a finding that Entergy's ICT or a stand-alone electric utility 
would not be deemed a ``regional transmission entity'' at this time. 
The NOPR laid out some of the factors the Commission may consider in 
its determination, such as sufficient regional scope or configuration 
or the multiple discrete transmission systems and electric utility 
controls. In this Final Rule, an electric utility claiming relief 
pursuant to section 210(m)(1)(B) must set forth the reasons that it 
meets the requirements of section 210(m)(1)(B)(i) in an application 
made pursuant to Sec.  292.310 of the Commission's regulations.
2. Section 210(m)(1)(B)(ii)
a. NOPR
    133. Section 210(m)(1)(B)(ii) requires QFs to have access to 
competitive wholesale markets that provide a meaningful opportunity to 
sell capacity and energy on both a short- and long-term basis and 
energy on a real-time basis to a buyer other than the utility to which 
the QF is interconnected. The Commission is to consider, among other 
factors, evidence of transactions within the relevant market in 
determining ``meaningful opportunity.'' The Commission stated that, 
taken together, the terms ``competitive,'' ``meaningful opportunity,'' 
and ``evidence of transactions'' suggest that Congress intended waiver 
to occur in a non-auction based market only if it could be established 
that QFs had the opportunity to sell their output into competitive 
wholesale markets to buyers other than the utility to which the QF is 
interconnected. In the NOPR, the Commission sought comment on ways that 
section 210(m)(1)(B)(ii) could be satisfied. The Commission asked if a 
demonstration that an organized power procurement process exists in 
which QFs can participate would satisfy.
b. Comments
    134. AES Shady Point, Deere, Energy Producers of California, Utah 
Association of Energy Users (UAE), and Solid Waste of Palm Beach 
believe that the existence of an organized power procurement process 
does not indicate the presence of a competitive wholesale market. 
Occidental argues that the Commission's reference to a generic 
``organized procurement process'' lacks the specificity required in 
order to analyze whether it would satisfy any element of section 
210(m)(1)(B)(ii) and omits the statutory requirement that QFs have a 
meaningful opportunity to sell to ``buyers other than the utility to 
which the qualifying facility is interconnected.'' ELCON states that 
the critical question is whether potential suppliers have access to 
other potential buyers apart from the monopsony buyer holding the 
request for proposals (RFP). ELCON states that the Commission should 
seek a demonstration of contractual sales of capacity or energy to 
utilities other than the interconnected utility in response to RFPs. 
The UAE argues that an organized procurement process does not ensure 
fairness since utilities often control their own procurement processes 
and can affect the outcome. The lack of an independently administered 
market makes it easy for a utility to select its own resource or a 
resource that it prefers. UAE also states that QF resources are likely 
to be eliminated in early rounds of the procurement process by 
unreasonably stringent credit requirements.
    135. Entergy and EEI contend that a procurement process should 
constitute ample evidence that QFs have access to competitive wholesale 
energy markets. EEI states that the Commission would be correct in 
finding that QFs with opportunities to participate in organized power 
procurement processes have access to short-term and long-term markets 
for the sale of energy and capacity. EEI states that roughly

[[Page 64361]]

nineteen states already require some form of competitive power 
procurement process.\63\ EEI states that QF commenters have submitted 
no evidence to disprove their ability to participate in these state-
overseen processes. EEI states that competitive procurements also are a 
feature of retail access programs and state renewable or resource 
portfolio programs.
---------------------------------------------------------------------------

    \63\ EEI Initial Comments at 44.
---------------------------------------------------------------------------

    136. Pacific Gas and Electric Company (PG&E) suggests the 
Commission should adopt a rebuttable presumption of a ``competitive 
wholesale market'' in which an organized power procurement process 
exists in which QFs can participate. PG&E notes that the California 
legislature established a comprehensive procurement process to be 
administered and overseen by the California Public Utilities Commission 
(CPUC). PG&E states that load serving entities must prepare a 
procurement plan which contains a process for utility procurement and 
CPUC approval of procurement strategies. PG&E claims that California's 
procurement process ensures QFs have fair access to this process. SCE 
argues that QFs have robust opportunities to compete in competitive 
solicitations issued by IOUs. SCE notes that its power procurement 
solicitations that are conducted pursuant to California's Renewable 
Portfolio Standard are open to generators as small as one megawatt.
    137. SCE suggests the Commission should make a generic finding that 
if the Commission has authorized market-based rate authority for any 
seller in a market then that market should be competitive enough to 
satisfy subparagraph (B)(ii). Several commenters oppose SCE's market-
based rate proposal and request that the Commission reject it. The CCC 
argues that SCE's arguments focus solely on the issue of whether 
sellers in a given market are able to exercise market power and fails 
to address the extent to which utilities are able to exercise monopsony 
buying power given their role as the only load serving entities (LSEs) 
with the ability and potential willingness to buy power on a long-term 
basis or in significant quantities. Deere contends that market-based 
rate authority is focused on the seller and its attributes, whereas 
section 210(m) is focused on the QF and its ability to access a market. 
Occidental adds that such a finding would render the distinction 
between ``competitive wholesale markets,'' as used in subparagraph 
(B)(ii), and ``wholesale markets,'' as used in subparagraphs (B) and 
(C), meaningless because the Commission has authorized market-based 
sales in every region of the continental United States.
c. Commission Determination
    138. The Commission in the NOPR set forth its interpretation of the 
statute and sought comments on ways section 210(m)(1)(B)(ii) could be 
satisfied. Specifically, the Commission asked if an organized 
procurement process would meet the requirements of section 
210(m)(1)(B)(ii). After reviewing the comments received, we have 
decided not to make any generic findings concerning whether procurement 
processes might satisfy section 210(m)(1(B)(ii). Reflecting on parties' 
comments and the Commission's own experience with utilities' 
procurement processes leads us to conclude that the processes are 
complex and not uniform. Thus, we cannot find that simply requiring an 
organized procurement process without elaboration would meet the 
requirements of the statute. Accordingly, we will not make a generic 
finding nor establish a rebuttable presumption, as PG&E and SCE 
suggest. As discussed in a later section, the Commission will entertain 
applications for relief of the mandatory purchase requirement pursuant 
to section 210(m)(1)(B) on a case-by-case basis pursuant to the 
procedures specified in section 292.310 of the Commission's 
regulations. The only rebuttable presumption that will apply in the 
context of applications under section 210(m)(1)(B) (as well as (C)) is 
the presumption that QFs 20 MWs or below do not have nondiscriminatory 
access to the relevant markets.
    139. The Commission, however, will not rule out the possibility of 
an organized procurement process satisfying some or all of the 
requirements of section 210(m)(1)(B)(ii). Should an electric utility 
seek such a finding in its application, it is incumbent upon the 
utility to fully demonstrate that the procurement process satisfies one 
or all of the elements of section 210(m)(1)(B)(ii).\64\ The utility 
must support its application with a detailed description of how the 
procurement process is designed, how winning bids are selected, 
evidence of past solicitations and winning bids,\65\ solicitation 
characteristics,\66\ and any other information about the procurement 
process. This list is not meant to be exhaustive, but rather provides 
examples of the type of information the Commission needs in order to 
make a finding.
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    \64\ All the elements of section 210(m)(1)(B)(ii) must be 
satisfied whether it is through an organized procurement process or 
by some other means or a combination.
    \65\ The Commission would be particularly interested in whether 
QFs have participated in the solicitations and whether QFs have been 
selected as a winning bidder.
    \66\ Solicitation characteristics refers to the contract term, 
type of service requested, dispatchability, the power terms and 
conditions, the non-power terms and conditions, etc.
---------------------------------------------------------------------------

    140. SCE argues that the ``competitive'' element of section 
210(m)(1)(B)(ii) could be met if the Commission has authorized market-
based rate authority to the utility seeking relief from the mandatory 
purchase requirement. We will not make a generic finding as suggested 
by SCE. When the Commission grants an applicant market-based rate 
authority, it examines an applicant's generation market power 
potential. The competitive element of section 210(m)(1)(B)(ii) is not 
concerned with how much generation a utility owns or its ability to 
exercise generation seller market power, but rather, whether the 
wholesale market provides a meaningful opportunity for a QF to sell its 
capacity and energy to a buyer other than the utility to which the QF 
is interconnected.
3. Case-by-Case Determinations for Subparagraphs (B) and (C)
a. NOPR
    141. In the NOPR, the Commission proposed to determine on a case-
by-case basis, rather than generically, whether a utility has met the 
requirements of sections 210(m)(1)(B) and 210(m)(1)(C) for relief from 
its mandatory purchase requirement. The Commission also proposed to 
allow joint applications to be filed by several utilities in a region 
if the applications for relief present common issue of law and fact. 
The NOPR concluded that utilities would be required to file such 
applications for relief with the Commission pursuant to section 
210(m)(3), which the Commission proposed to implement in section 
292.310 of its regulations.
b. Comments
    142. No comments were filed opposing the NOPR's proposal. 
Constellation seeks clarification as to how the Commission will treat 
current Day 1 or non-RTO markets which may, in the future, become ``Day 
2'' markets. Constellation wants any future ``Day 2'' market to be 
analyzed on a case-by-case basis pursuant to section 210(m)(3).
    143. EPSA supports a case-by-case approach for subparagraphs (B) 
and (C) provided that an individual QF can

[[Page 64362]]

rebut utility's application. EPSA also argues that utilities should be 
required to file specific contract information that would support the 
premise that there are ``competitive wholesale markets that provide a 
meaningful opportunity to sell capacity, including long-term, short-
term and real-time sales to buyers other than the utility to which the 
qualifying facility is interconnected.''
    144. LEUG, NISCO, and Occidental seek clarification in the Final 
Rule that Entergy's ICT does not satisfy the requirements of section 
210(m)(1)(B). These commenters state that access to section 
210(m)(1)(B) markets does not exist in Louisiana today, and will not 
result from Entergy's ICT and weekly procurement process proposals. The 
commenters state that an ICT can not satisfy section 210(m)(1)(B)(i) 
because Entergy's ICT proposal calls for Entergy to remain the owner 
and operator of the transmission system and continue to have ultimate 
responsibility for providing transmission service.
c. Commission Determination
    145. The Commission adopts the NOPR's proposal to determine on a 
case-by-case basis in response to applications filed pursuant to 
section 292.310 of the Commission's regulations whether an electric 
utility has met the requirements of sections 210(m)(1)(B) and 
210(m)(1)(C) for relief from its mandatory purchase requirement. We 
clarify for EPSA that individual QFs may file comments opposing a 
utility's section 210(m)(3) application for relief pursuant to 
subparagraphs (B) and (C).\67\ We will also clarify for Constellation 
that any current ``Day 1'' market or non-RTO market that becomes a 
``Day 2'' market after issuance of this Final Rule will not be 
addressed generically in a rulemaking but will be addressed on a case-
by-case basis. This is consistent with what the Commission proposed in 
the NOPR. The Commission proposed, and we adopt here, that all issues 
relating to non-RTO/ISOs and RTO/ISOs that do not have both auction-
based real-time and day-ahead markets will be addressed on a case-by-
case basis, pursuant to section 210(m)(3) as implemented by the 
Commission in Sec.  292.310 of the Commission's regulations. The only 
generic finding in this Final Rule that will apply to case-by-case 
determinations are the rebuttable presumptions that the OATT and 
interconnection rules provide nondiscriminatory access to markets, and 
that QFs 20 MWs or below do not have nondiscriminatory access to 
markets.
---------------------------------------------------------------------------

    \67\ This also applies to section 210(m)(3) applications for 
relief pursuant to section 210(m)(1)(A), which is discussed in 
another part of the Final Rule.
---------------------------------------------------------------------------

    146. While we will not institute another rulemaking to address 
whether a new ``Day 2'' RTO/ISO satisfies the statutory criteria for a 
utility to claim relief from the requirement that it enter into new 
contracts or obligations with QFs within the markets, we note that the 
90-day proceedings provided for in section 210(m)(3) of PURPA and Sec.  
292.310 of our regulations, provide a very compressed period for making 
the complex determinations that a regional market satisfies the 
statutory criteria. Accordingly, for utilities that wish to obtain a 
regional generic determination that a market satisfies the criteria of 
section 210(m)(1)(A), we will entertain declaratory orders to make such 
determinations. If a generic determination is made in a declaratory 
order context, the utility members of the market would then be 
obligated to file for relief from the requirement that they purchase 
from QFs on a utility specific basis pursuant to section 292.310 of our 
regulations before the Commission would terminate the requirement that 
the electric utility purchase electric energy from QFs.
    147. For purposes of obtaining regulatory certainty earlier rather 
than later, it is also possible that a QF may want to seek a 
declaratory order that, based on its specific circumstances, it does 
not have nondiscriminatory access to markets. We will entertain such 
declaratory order requests. If a QF obtains such an advance declaratory 
order, it may file the order in response to a utility's application to 
be relieved of the mandatory purchase obligation under section 292.310 
of the Commission's regulations.
    148. We will not grant the three commenters' request that we 
clarify in the Final Rule that Entergy's ICT does not satisfy the 
requirements of section 210(m)(1)(B). Rather, consistent with the 
approach adopted herein, we will consider Entergy's ICT on a case-by-
case basis should Entergy decide to file an application for relief 
pursuant to section 210(m)(3) and Sec.  292.310 of the Commission's 
regulations.

D. Section 210(m)(1)(C)--Nonpublic Utilities

1. NOPR
    149. The NOPR proposed that there be a rebuttable presumption that 
a utility provides nondiscriminatory access if it has an Order No. 888 
OATT on file with the Commission or a Commission-approved reciprocity 
tariff.
2. Comments
    150. NRECA states that some non-public utility cooperatives do not 
have reciprocity tariffs however, a number of these non-public electric 
utilities have adopted OATTs based on the Commission's pro forma OATT, 
and have provided nondiscriminatory access to third parties for years. 
NRECA states that they too should be deemed to provide 
nondiscriminatory access on a case-by-case basis, or they should at 
least be accorded a rebuttable presumption that they provide such 
service.
3. Commission Determination
    151. We decline to establish a rebuttable presumption of 
nondiscriminatory access here for non-public utilities which may have 
adopted transmission tariffs that are based on the Commission's pro 
forma OATT but are not on file with the Commission. The statute clearly 
states that the Commission must find that the QF has nondiscriminatory 
access to specific markets before the purchase obligation may be 
lifted. While the Commission appreciates that some non-public 
cooperatives have adopted OATTs based on the Commission's pro forma 
OATT, the Commission has not had opportunity to review these nor has 
the public, including any affected QF. We therefore believe that it is 
more appropriate for the Commission to evaluate whether QFs 
interconnected with such utilities have nondiscriminatory access to a 
market defined by section 210(m)(1)(A), (B), or (C) on a case-by-case 
basis. Non-public utilities seeking relief from the mandatory purchase 
requirement may file an application pursuant to Sec.  292.310 of the 
Commission's regulation and may include their tariffs in support of 
their applications.

E. California Independent System Operator Corporation

1. NOPR
    152. In the NOPR, the Commission did not make a preliminary finding 
that the California region operated by the CAISO met the requirements 
of PURPA section 210(m)(1). The Commission did recognize that the CAISO 
is a Commission-approved ISO, but that the requirements of section 
210(m)(1)(A) have not been satisfied because the CAISO does not have a 
day-ahead market. The Commission noted that any utility within the 
CAISO footprint may file an application with the Commission to seek 
relief from the mandatory purchase requirement pursuant to sections 
210(m)(1)(B) or (C).

[[Page 64363]]

2. Comments
    153. SCE and PG&E submitted comments requesting that the Commission 
find that the CAISO will meet the requirements of section 210(m)(1)(A) 
once the CAISO's Market Redesign and Technology Upgrade Tariff (MRTU 
Tariff) is effective.\68\ SCE and PG&E note that the MRTU Tariff filing 
demonstrates that the CAISO region will have the requisite features to 
satisfy section 210(m)(1)(A)(i), specifically a day-ahead market. SCE 
argues that the features described in the MRTU Tariff compare with 
those of other regions for which the Commission is prepared to make 
generic findings. SCE also states there are bilateral long-term 
contracts in the CAISO region today. Therefore, the CAISO region meets 
section 210(m)(1)(A)(ii). The California Public Utilities Commission 
(CPUC) and PG&E also request a finding that once the Commission has 
determined that CAISO has met the requirements of section 210(m)(1)(A), 
utilities participating in CAISO need only make a ministerial filing to 
be granted a waiver by the Commission.
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    \68\ The CAISO filed its proposed MRTU Tariff on February 9, 
2006, in Docket No. ER06-615-000, and requested an effective date of 
November 1, 2007. The Commission conditionally accepted MRTU on 
September 21, 2006. California Independent System Operator 
Corporation, 116 FERC ] 61,274 (2006).
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    154. PG&E, SCE and the EEI request a generic finding that the CAISO 
satisfies section 210(m)(1)(B)(i), and thus, a utility interconnected 
to the CAISO meets section 210(m)(1)(B)(i). EEI notes that the 
Commission has ruled that the CAISO Tariff provides nondiscriminatory 
access to the ISO controlled grid.
    155. The CCC objects to the NOPR's suggestion that California could 
qualify for termination of the PURPA purchase obligation once a day-
ahead market starts operating. It argues that such a suggestion ignores 
the realities of the California market. CCC contends that QFs continue 
to have difficulty finding meaningful opportunities to sell their 
output in California due to utilities' general reluctance to execute 
contracts with QFs and a lack of viable alternatives to the utility 
purchaser. It states that merely adding an organized day-ahead market 
will not resolve these problems. The CCC points to a California Energy 
Commission's 2005 Integration Energy Policy Report (Energy Report) as 
support for the position that QFs do not have meaningful opportunities 
to sell their power in California. According to CCC, the Energy Report 
finds that cogenerators have few opportunities to sell their power in 
the existing wholesale markets and a lack of a robust, functioning 
wholesale market in California discourages cogenerators from installing 
new generation. SCE disputes CCC's representation of the Energy Report.
    156. Independent Energy Producers Association of California 
(Independent Energy Producers) states that the MRTU has yet to be 
implemented let alone analyzed to ensure it is operating as designed 
and in a manner that the CAISO itself has determined sufficient to 
remedy the market deficiencies it has identified. Independent Energy 
Producers also notes that the California market cannot provide the 
nondiscriminatory access required because projects smaller than 1 MW 
are excluded by rule from participation. Independent Energy Producers 
further notes CAISO's intent to subject existing QFs with existing 
interconnections to renewed interconnection studies.
3. Commission Determination
    157. Certain commenters request that the Commission make a generic 
finding that the CAISO will meet the requirements of section 
210(m)(1)(A) once the CAISO's MRTU Tariff filing becomes effective. 
According to the CAISO, the MRTU Tariff provides for operation of a 
day-ahead market, which is the missing element in meeting the 
requirements of section 210(m)(1)(A). It would be premature for the 
Commission to make such a generic finding in this rulemaking 
proceeding. The CAISO filed its proposed MRTU Tariff on February 9, 
2006, in Docket No. ER06-615-000, and requested an effective date of 
November 1, 2007. While the Commission conditionally approved CAISO's 
MRTU Tariff on September 21, 2006,\69\ the tariff will not become 
effective until November 1, 2007, as requested. Until there is a 
functioning ``Day 2'' RTO/ISO in California, the Commission is unable 
to make the findings required by section 210(m)(1)(A) for termination 
of the mandatory purchase requirement. However, for utilities that wish 
to obtain a regional generic determination that a market satisfies the 
criteria of section 210(m)(1)(A), we will entertain requests for 
declaratory orders to make such determinations.
---------------------------------------------------------------------------

    \69\ Supra note 67.
---------------------------------------------------------------------------

    158. Certain commenters request that the Commission make a finding 
that the CAISO satisfies section 210(m)(1)(B)(i). Section 
210(m)(1)(B)(i) requires a QF to have nondiscriminatory access to 
transmission and interconnection services that are provided by a 
Commission-approved regional transmission entity and administered 
pursuant to an open access transmission tariff that affords 
nondiscriminatory treatment to all customers. In the NOPR, the 
Commission interpreted section 210(m)(1)(B)(i) to mean that QFs must 
have access to transmission and interconnection service pursuant to a 
Commission-approved OATT and interconnection rules and provided by an 
entity that is regional in scope.\70\ The CAISO has a Commission-
approved OATT that has been amended to incorporate the interconnection 
requirements of Order No. 2003. Thus, in order to make a finding that 
the CAISO satisfies section 210(m)(1)(B)(i), the Commission would have 
to find that the CAISO is a ``regional transmission entity.'' We noted 
in the NOPR that amended PURPA section 210 does not define ``regional 
transmission entity,'' and therefore, the Commission has discretion to 
deem an entity to be ``regional'' based on factors such as sufficient 
regional scope or configuration of the multiple discrete transmission 
systems it controls. The CAISO offers transmission and interconnection 
services throughout the state of California over the transmission 
systems of several electric utilities. We find that California is large 
enough in size and configures several discrete transmission systems for 
the CAISO to be considered a ``regional transmission entity.'' 
Accordingly, the Commission finds that the CAISO satisfies section 
210(m)(1)(B)(i). A member electric utility of the CAISO may rely on 
this finding in its application to be relieved of the obligation to 
enter into new contracts to purchase QF electric energy. We will not, 
however, make any findings with regard to section 210(m)(1)(B)(ii). 
Thus, electric utilities that are members of the CAISO seeking relief 
from the mandatory purchase requirement will need to file an 
application pursuant to section 210(m)(3) and Sec.  292.310 of the 
Commission's regulations with the Commission and make the showings 
required by section 210(m)(1)(B)(ii) in order to be relieved of the 
PURPA purchase obligation. The presumption that QFs 20 MWs or below do 
not have nondiscriminatory access to markets will apply.
---------------------------------------------------------------------------

    \70\ NOPR at P 16.
---------------------------------------------------------------------------

F. Southwest Power Pool

1. NOPR
    159. In the NOPR, the Commission did not make a preliminary finding 
that the region operated by the SPP meets the requirements of PURPA 
section

[[Page 64364]]

210(m)(1). The Commission did recognize that the SPP is a Commission-
approved RTO, but that the requirements of section 210(m)(1)(A) have 
not been satisfied because the SPP does not operate a day-ahead market. 
The Commission noted that any utility within the SPP footprint may file 
an application with the Commission to seek relief from the mandatory 
purchase requirement pursuant to sections 210(m)(1)(B) or (C).
2. Comments
    160. OG&E requests the Commission find that utilities located in 
the SPP satisfy section 210(m)(1)(A). OG&E notes that the SPP filed 
revisions to its OATT to implement a real-time imbalance market (EIS 
Market). The EIS Market will enable market participants to undertake 
both day-ahead and real-time transactions.
    161. OG&E and AEP also request the Commission find that SPP 
utilities satisfy section 210(m)(1)(B). The SPP is a Commission-
approved RTO and the SPP OATT affords all customers with 
nondiscriminatory treatment and complies with all currently-effective 
Commission policies and regulations as they apply to the development of 
an OATT. Therefore, OG&E and AEP ask the Commission to find that the 
SPP OATT satisfies the criteria of section 210(m)(1)(B)(i). OG&E states 
that section 210(m)(1)(B)(ii) is satisfied because load serving 
entities in SPP actively solicit power supplies using competitive 
bidding procedures. OG&E notes that the Oklahoma Corporation Commission 
requires electric public utilities providing retail service in Oklahoma 
to procure long-term electric generation through competitive bidding. 
AEP notes that Louisiana established competitive bidding rules that 
require a utility to follow a formal RFP process for the acquisition of 
generation resources and for purchases of capacity and/or energy of 
more than one year in duration. Based on these aspects, OG&E and AEP 
argue that the SPP region satisfies section 210(m)(1)(B).
    162. Deere disagrees with OG&E and AEP and argues that the SPP 
market has not yet satisfied the criteria for relief from the PURPA 
mandatory purchase requirement. Deere notes that SPP's EIS Market 
implementation has been delayed until at least October 2006, and 
therefore, it has not been ``road tested.''
3. Commission Determination
    163. Similar to the determination we made for the CAISO, the 
Commission will not make the findings required by section 210(m)(1)(A) 
for termination until there is a functioning ``Day 2'' market. The 
Commission, on September 26, 2006, acted on rehearing requests 
concerning SPP's proposed tariff revisions to implement an imbalance 
market,\71\ which will not be functional until December 1, 2006, at the 
earliest. Thus, it would be premature for the Commission to make such a 
finding in this rulemaking proceeding. Once SPP's market is 
operational, electric utilities who are members of SPP may file, 
individually or jointly, an application for relief of the PURPA 
purchase obligation pursuant to section 210(m)(3) and section 292.310 
of the Commission's regulations.
---------------------------------------------------------------------------

    \71\ Southwest Power Pool, Inc., 116 FERC ] 61,289 (September 
26, 2006).
---------------------------------------------------------------------------

    164. OG&E and AEP also request the Commission to make a 
determination that electric utilities operating in the SPP satisfy 
section 210(m)(1)(B). These commenters also request a finding that the 
SPP OATT satisfies the requirements of section 210(m)(1)(B)(i). With 
regard to the latter request, section 210(m)(1)(B)(i) requires a QF to 
have nondiscriminatory access to transmission and interconnection 
services that are provided by a Commission-approved regional 
transmission entity and administered pursuant to an OATT that affords 
nondiscriminatory treatment to all customers. In the NOPR, the 
Commission interpreted section 210(m)(1)(B)(i) to mean that QFs must 
have access to transmission and interconnection service pursuant to a 
Commission-approved OATT and interconnection rules provided by an 
entity that is regional in scope.\72\ SPP provides transmission and 
interconnection service pursuant to a Commission-approved OATT that has 
been amended to incorporate the interconnection requirements of Order 
No. 2003. As noted above, SPP is a Commission-approved RTO, and, 
therefore, SPP satisfies the ``regional transmission entity'' 
requirement of section 210(m)(1)(B)(i). Accordingly, the Commission 
finds that SPP meets the criteria of section 210(m)(1)(B)(i). A member 
electric utility of the SPP may rely on this finding in its application 
to be relieved of the obligation to enter into new contracts to 
purchase QF electric energy.
---------------------------------------------------------------------------

    \72\ NOPR at P 16.
---------------------------------------------------------------------------

    165. Turning our attention to whether electric utilities operating 
in the SPP market satisfy section 210(m)(1)(B), we decline to make such 
a finding in this rulemaking proceeding. As an initial matter, the 
Commission does not have the evidence of transactions, as required by 
the statute, to make the requisite finding that QFs in the SPP market 
have nondiscriminatory access to ``competitive'' wholesale markets that 
provide a ``meaningful opportunity'' to make sales to buyers other than 
the electric utility to which the QFs are interconnected.
    166. Moreover, as discussed above, the Commission will make 
determinations on a case-by-case basis, rather than generically, for 
utilities seeking relief from the mandatory purchase requirement 
pursuant to sections 210(m)(1)(B) and (C). Accordingly, OG&E, AEP, or 
any other electric utility may file with the Commission an application 
for relief pursuant to section 210(m)(3) of PURPA and Sec.  292.310 of 
the Commission's regulations and make the showings required by section 
210(m)(1)(B)(ii) in order to be relieved of the PURPA purchase 
obligation. The rebuttable presumption that QFs 20MW or below do not 
have nondiscriminatory access to markets will apply.

G. ERCOT

1. Comments
    167. Reliant, TXU Energy, Power and Wholesale Companies (TXU) and 
the Public Utility Commission of Texas (PUCT) request that the 
Commission extend its preliminary finding regarding approved RTO/ISOs 
to include ERCOT through a generic finding under section 210(m)(1)(C) 
of section 210(m) rather than requiring case-by-case review. Direct 
Energy filed reply comments in support of this request.
    168. Reliant explains that, while the ERCOT ISO does not meet all 
the criteria under section 210(m)(1)(A), the region is competitive in 
compliance with Texas law under the Public Utility Regulatory Act 
(PURA) and was certified as an ISO by the Public Utilities Commission 
of Texas. PURA provided for the creation of a regional independent 
organization to perform key functions to facilitate wholesale and 
retail competition similar to those the Commission prescribed for RTOs 
in Order No. 2000.
    169. Reliant describes the features of the ERCOT market without 
explicitly suggesting that it meets the criteria of section 
210(m)(1)(A). Reliant notes that ERCOT is independently administered. 
While it does not administer a centralized day-ahead market or forward 
market, ERCOT has a real-time market sufficient to support a robust 
market-based day-ahead market for sales of electricity. The ERCOT ISO 
supports the scheduling of bilateral capacity and energy contracts 
(both short- and long-term) by qualified scheduling entities

[[Page 64365]]

and conducts day-ahead auctions for ancillary services.
    170. Reliant asserts that the ERCOT region meets the criteria for 
electric utility relief from the purchase obligation under 210(m)(1)(C) 
because access to a sufficiently competitive market for QFs to sell 
their power currently exists in ERCOT and has been affirmed by the 
PUCT. Reliant contends that this access parallels the nondiscriminatory 
access to competitive markets in Commission-approved RTOs and ISOs. It 
believes that the PUCT's certification of ERCOT as a competitive market 
and the ``operational reality'' of a robust wholesale and retail market 
in ERCOT further support this conclusion.
    171. Reliant argues that the most administratively efficient 
application of section 210(m)(1) would be to extend the Commission's 
preliminary finding regarding its approved RTOs or ISOs to the ERCOT 
region through a generic finding under section 210(m)(1)(C). This would 
allow ERCOT entities to submit ministerial applications under this 
section and to have the application treated as a compliance filing 
under Sec.  292.310(a) of the proposed rule. It would allow the 
Commission to avoid the filing of separate applications from electric 
utilities located in a region that has robust wholesale and retail 
competition. Reliant states that extension of the Commission's finding 
is appropriately based on the demonstrated competitive market 
conditions existing in the ERCOT region, in which QFs have the 
opportunity to sell energy and capacity to buyers other than the 
utilities to which they are interconnected. TXU supports Reliant's 
positions for the same reasons.
    172. The PUCT adds that wholesale competition has been in effect in 
ERCOT under open-access rules prescribed by the PUCT since 1996. It 
states that, on January 1, 2002, retail competition in the electric 
market began for all customers of investor-owned utilities in the ERCOT 
region. The PUCT also states that, as of October 2004, there were 85 
retail electric providers certified by the PUCT, with 55 of those 
actively serving customers.
2. Commission Determination
    173. The information Reliant provides with regard to ERCOT supports 
a finding that QFs have access to the transmission and distribution 
systems so that they have access to markets in ERCOT; the information 
also supports a finding that the markets in ERCOT satisfy the criteria 
of section 210(m)(1)(C) in that they are of comparable competitive 
quality as the markets described in section 210(m)(1)(A).
    174. The PUCT states that wholesale competition has been in effect 
in ERCOT under open-access rules prescribed by the PUCT since 1996. 
According to the PUCT, these open access rules ensure access to the 
transmission and distribution systems for all buyers and sellers of 
electricity on nondiscriminatory terms. PUCT states that the ERCOT 
system is administered independently of any individual market 
participant. Utility and non-utility sellers have nondiscriminatory 
access to wholesale transmission service. Scheduling protocols afford 
non-discriminatory access to all customers. In ERCOT, there is no 
``native load preference,'' and thus QFs receive the same quality of 
access to ERCOT markets as all other market participants. In addition, 
ERCOT uses a market-based congestion management system. ERCOT's zonal 
model uplifts local congestion costs system-wide, while directly 
assigning the cost of relieving inter-zonal congestion. ERCOT conducts 
auctions that allow market participants to hedge their risk by buying 
financial transmission rights on commercially significant flowgates.
    175. On January 1, 2002, retail competition in the electric market 
began for all customers of investor-owned utilities (IOU) in the ERCOT 
region. As of October 2004, there were 85 retail electric providers 
(REPs) certified by the PUCT. The PUCT states that with the numerous 
REPs in the ERCOT market-place QFs have ample opportunity, equal to 
that of all other generators in the marketplace, to competitively 
procure contracts for the output of their facilities.
    176. According to the PUCT, QFs in ERCOT have ample opportunity to 
sell both firm and non-firm power. Power is sold to REPs in the ERCOT 
market primarily through bilateral contracts of varying lengths of 
time. While ERCOT operates a real-time balancing energy market, 
bilateral transactions permit a buyer and seller to come to mutually 
agreed to terms with a greater degree of price certainty than in the 
balancing market and the majority of transactions in ERCOT take place 
pursuant to bilateral transactions.
    177. In ERCOT, QFs have the opportunity to sell in an organized 
energy market. ERCOT's balancing energy market is an independently 
administered, aution-based, real time market and provides cogeneration 
QFs an opportunity to sell in the electric market while fulfilling 
contractual obligations to provide steam to their thermal hosts. QFs, 
as well as others, may use the balancing energy market to sell energy 
in the real-time at the market clearing price of energy. In addition, 
ERCOT operates a day-ahead and real-time market for ancillary services. 
ERCOT does not administer a centralized day-ahead market for energy, 
but Reliant submitted testimony that ERCOT's real-time market has been 
sufficient to support a robust market-based (as opposed to 
administratively-created) day-ahead market for sale of electricity.
    178. As part of its filing, Reliant submitted the ERCOT protocols 
to support its claim that QFs have nondiscminatory access to markets 
that are of equal competitive quality to section 210(m)(1)(A) markets. 
These protocols are not a FERC tariff. They are, however, approved by 
the PUCT.\73\ In its comments, the PUCT states that the market that has 
developed in ERCOT is sufficiently robust that QFs operating within 
ERCOT now rely on the market to make sales and no longer rely on the 
PURPA purchase obligation to make sales.
---------------------------------------------------------------------------

    \73\ Texas State law requires states: ``The commission shall 
ensure that an electric utility or transmission and distribution 
utility provides nondiscriminatory access to wholesale transmission 
service for qualifying facilities, exempt wholesale generators, 
power marketers, power generation companies, retail electric 
providers, and other utilities or transmission and distribution 
utilities.'' Public Utility Regulatory Act, TEX. UTIL. CODE ANN. 
35.0004 (PURA).
---------------------------------------------------------------------------

    179. As noted above, Reliant, TXU and the PUCT have asked that the 
Commission make a generic finding that QFs in ERCOT have 
nondiscriminatory access to markets that satisfy section 210(m)(1)(C). 
No commenters have opposed this request. Based on our review of the 
ERCOT protocols, the support of the PUCT for termination of the 
purchase obligation in ERCOT, and the lack of opposition to our making 
a generic finding, the Commission finds that: (1) there is a rebuttable 
presumption that QFs larger than 20 MW operating in ERCOT have 
nondiscriminatory access to markets,\74\ and (2) the markets in ERCOT 
satisfy the criteria of section 210(m)(1)(C) in that they are markets 
of comparative

[[Page 64366]]

competitive quality to markets described in section 210(m)(1)(A).
---------------------------------------------------------------------------

    \74\ QFs may rebut this presumption by making a demonstration by 
making a demonstration that: (i) The QF has certain operational 
characteristics that effectively prevent the QF's participation in a 
market; or (ii) a QF lacks access to markets due to transmission 
constraints. An existing QF can show that it is located in an area 
where persistent transmission constraints in effect cause the QF to 
have neither physical nor financial access to markets outside a 
persistently congested area and there is not a sufficient 
opportunity to redispatch around the constraint or to sell the QF 
output or capacity within the area on a short-term and/or long-term 
basis because of the constraint.
---------------------------------------------------------------------------

    180. Electric utilities operating within ERCOT may make a filing to 
be relieved of the purchase obligation pursuant to section 292.310 of 
the regulations. The rebuttable presumption that QFs 20 MW or smaller 
lack nondiscriminatory access shall be applicable to QFs in ERCOT. 
Electric utilities may rebut that presumption on the same grounds as 
electric utilities in other markets rebut the presumption.

H. Section 210(m)(2)--Revised Purchase and Sale Obligation for New 
Cogeneration Facilities

    181. Section 210(m)(2)(A) reads:

    REVISED PURCHASE AND SALE OBLIGATIONS FOR NEW FACILITIES--(A) 
After the date of enactment of this subsection, no electric utility 
shall be required pursuant to this section to enter into a new 
contract or obligation to purchase from or sell electric energy to a 
facility that is not an existing qualifying cogeneration facility 
unless the facility meets the criteria for qualifying cogeneration 
facilities established by the Commission pursuant to the rulemaking 
required by subsection (n).

    182. In the NOPR the Commission stated that this provision 
reinforces the requirement that new qualifying cogeneration facilities 
must satisfy the section 210(n) criteria for new qualifying 
cogeneration facilities. The Commission proposed to include this 
language in Sec.  292.309(d) of the proposed regulations. There were no 
comments objecting to this proposal, and the Commission will adopt the 
NOPR's proposal. The language proposed by the Commission is adopted in 
this Final Rule as Sec.  292.309(h) of the Commission's regulations.
    183. Section 210(m)(1)(B) defines the term ``existing qualifying 
cogeneration facility.'' The Commission proposed a definition of 
``existing qualifying cogeneration'' in Sec.  292.309(b)(1) of the 
proposed regulations. There were no comments objecting to the proposal. 
The proposed language is adopted in this Final Rule as Sec.  
292.309(i).

I. Section 210(m)(3)--Commission Review

1. Sufficient Notice
a. NOPR
    184. Section 210(m)(3) states, in relevant part, that ``after 
notice, including sufficient notice to potentially affected [QFs], and 
an opportunity for comment, the Commission shall make a final 
determination within 90 days of such application regarding whether the 
conditions set forth in subparagraph (A), (B), or (C) of paragraph (1) 
have been met.'' \75\ Prior to the issuance of the NOPR, the Commission 
dealt with two section 210(m)(3) applications.\76\ In Alliant, the 
Commission explained its interpretation and application of ``notice, 
including sufficient notice to potentially affected [QFs].'' The 
Commission clarified that an applicant would be required to identify 
all potentially affected QFs in any section 210(m)(3) application. The 
Commission also listed five categories of facilities that would 
constitute ``all potentially affected QFs.'' In the NOPR, the 
Commission proposed to incorporate this interpretation of ``sufficient 
notice'' and ``all potentially affected QFs'' in new Sec.  292.310(b) 
and (c) of the Commission's regulation.
---------------------------------------------------------------------------

    \75\ 16 U.S.C. 824a-3(m)(3) (emphasis added).
    \76\ See Alliant Energy Corporate Services, Inc., 113 FERC ] 
61,024 (2005) (Alliant); Montana-Dakota Utilities Co., 113 FERC ] 
61,045 (2005) (Montana-Dakota).
---------------------------------------------------------------------------

b. Comments
    185. PSNM is concerned with requiring notice by applicants seeking 
relief from the purchase obligation to developers of facilities that 
have pending state avoided cost proceedings and any other QFs that the 
applicant reasonably believes to be affected by its petition. 
Specifically, it states that the applicant seeking relief may not 
necessarily be aware of all of the entities falling within these 
classifications. PSNM recommends that the Commission revise the 
proposed Sec.  292.310(c)(4) to state: ``developers of facilities that 
have pending state avoided cost proceedings involving the applicant.''
    186. SCE is concerned with proposed Sec.  292.310(b), (c)(2) and 
(c)(5). It states that these categories may capture too broad a 
category of entities and thus lead to needless debates over the scope 
of notice provided. It states that in any case uncertified QFs and 
certified QFs not in the service territory of the applicant, as well as 
all other interested parties, will receive sufficient notice through 
the Federal Register notice process. SCE argues that the relevant 
statute requires sufficient notice, not actual notice.
c. Commission Determination
    187. The Commission will adopt the NOPR's proposal to incorporate 
its interpretation of ``sufficient notice'' and ``all potentially 
affected QFs'' as described in Alliant with one modification. PSNM 
points out that an applicant may not be aware of state avoided cost 
proceedings that do not involve the applicant and recommends adding 
``involving the applicant'' to proposed Sec.  292.310(c)(4). We agree 
that an applicant would not necessarily know about QF developers that 
have initiated state avoided cost proceedings that do not involve the 
applicant. Nor did we intend for applicants in this situation to 
identify such QF developers. We find PSNM's proposed revision adds 
clarity to Sec.  292.310(c)(4) and it is consistent with the 
Commission's interpretation of ``all potentially affected QFs.'' 
Accordingly, we will modify Sec.  292.310(c)(4) to state: ``(4) The 
developers of facilities that have pending state avoided cost 
proceedings involving the applicant; and''.
    188. We disagree with SCE's notion that ``all potentially affected 
QFs'' will receive sufficient notice through the Federal Register 
notice process. While the statutory language does not explicitly state 
that the ``notice, including sufficient notice'' shall be actual 
notice, the Commission nonetheless believes its statutory requirement 
is best met by providing all potentially affected QFs, many of which 
are small entities that do not regularly read the Federal Register, 
with actual notice.
2. Filing Fee
a. NOPR
    189. Section 210(m)(3) states, in relevant part, that any electric 
utility may file an application for relief from the mandatory purchase 
requirement. In the NOPR, the Commission proposed that utilities 
seeking relief from the mandatory purchase requirement would need to 
file an application pursuant to section 210(m)(3).
b. Comments
    190. SCE seeks confirmation that an application filed pursuant to 
section 210(m)(3) is not subject to Rule 207.\77\ SCE argues that the 
statute indicates that the filing is an ``application'' and thus should 
be subject to Rule 204,\78\ which does not require the payment of a 
fee.
---------------------------------------------------------------------------

    \77\ 18 CFR 385.207.
    \78\ 18 CFR 385.204.
---------------------------------------------------------------------------

c. Commission Determination
    191. SCE is the only commenter to seek clarification on whether or 
not a filing fee is associated with a section 210(m)(3) application. We 
find that no filing fee shall apply to section 210(m)(3) applications.

J. Section 210(m)(4)--Reinstatement of Obligation to Purchase

    192. In the NOPR, the Commission proposed Sec.  292.311 to the 
Commission's

[[Page 64367]]

regulations which is identical to statutory language of section 
210(m)(4). The Commission viewed section 210(m)(4) as an opportunity 
for a QF, a state agency, or any affected person to seek to reinstate 
the purchase obligation should there be a material change in the 
circumstances under which the Commission granted relief. The Commission 
noted that the applicant bears the burden to ``set forth the factual 
basis'' upon which the application is based. The Commission further 
stated that the requirement for a ``factual basis'' indicates that 
allegations of a change in the conditions upon which relief was granted 
must be supported with evidence. The Commission proposed to consider 
these applications on a case-by-case basis.\79\
---------------------------------------------------------------------------

    \79\ In the NOPR, the Commission also stated that, consistent 
with our interpretation of ``notice'' under section 210(m)(3), the 
Commission will require an applicant to identify all potentially 
affected utilities in the application so that the Commission will be 
able to meet its statutory requirement to provide sufficient notice 
and an opportunity for comment.
---------------------------------------------------------------------------

    193. No adverse comments were filed in response to the Commission's 
proposal. Therefore, the Commission will adopt Sec.  292.311 to the 
Commission's regulations, as proposed.

K. Section 210(m)(5)--Obligation to Sell

1. NOPR
    194. Section 210(m)(5) of PURPA removes the requirement that an 
electric utility sell electric energy to any QF if the Commission finds 
that: ``competing retail electric suppliers are willing and able to 
sell and deliver electric energy to the qualifying cogeneration 
facility or qualifying small power production facility; and the 
electric utility is not required by State law to sell electric energy 
in its service territory.'' In the NOPR, the Commission proposed to 
incorporate the statutory language into its regulations.
2. Comments
    195. ACC, American Iron and Steel Institute, ELCON and Midwest ISO 
Transmission Customers argue that by simply importing into its 
regulations the statutory standard in section 210(m)(5), the Commission 
provides no assurance that it will continue to protect the rights of 
QFs to receive standby and backup power at just, reasonable, and 
nondiscriminatory rates. They argue that no such finding can be made 
unless the Commission conducts an investigation to assure itself that 
there is sufficient competition among suppliers that market power will 
not be exercised in the sale of power. For instance, ELCON and American 
Forest & Paper suggest that the Commission require QFs have available 
at least two competing suppliers who are not affiliated with the 
utility before relieving the utility of its sales obligations under 
section 210(m)(5). They assert that this is required by the statutory 
language referring to ``competing retail electric providers'' in the 
plural. Moreover, the Coalition of CIBO argue that the utility be 
required to demonstrate that all of the services are competitively 
available.
    196. In addition, CCC, EPSA, Florida Industrial, Energy Consumers, 
Solid Waste Authority request that the Commission clarify that lifting 
of the PURPA obligation to purchase QF electricity for a particular 
utility does not relieve such utility of its obligation to sell 
supplemental, backup, standby and maintenance power to the QF at fair, 
reasonable and nondiscriminatory rates.
    197. Also, the CCC argues that the statute requires that the 
competing supplier must be able to ``deliver'' as well as ``sell'' the 
backup and standby power and that the Commission must make certain that 
the utility cannot use its monopoly over retail delivery (i.e., 
distribution) service to impede the development of QF projects.
    198. Further, the CCC states that the Commission should recognize 
that in addition to a showing of an alternative retail supplier of 
electricity, the statute requires a second showing that the utility no 
longer has any state law obligation to serve retail customers in its 
service territory. ELCON and American Forest & Paper add that the 
Commission should interpret this second prong to require any utility 
that has an obligation to provide Standard Offer or Default service is 
``required by state law to sell electric energy in its service 
territory.'' They state that typically the state has imposed such 
obligations where necessary to achieve just and reasonable rates or 
adequate, reliable service. ELCON and American Forest & Paper state 
that QFs should not be deprived of any benefit that the state has 
determined to be appropriate for retail customers.
    199. In response to the arguments for the Commission to retain a 
utility obligation to supply backup power at just and reasonable rates, 
EEI argues that as backup power is a retail electric service, it is 
beyond the Commission's jurisdiction to determine the justness and 
reasonableness of such retail rates. It argues that the most the 
Commission can find, as the statute makes clear, is that competing 
retail suppliers are willing and able to sell to the QF, and that there 
is no applicable state obligation to serve.
3. Commission Determination
    200. We clarify that lifting of the PURPA obligation to purchase QF 
electricity for a particular utility does not relieve such utility of 
its obligation to sell supplemental, backup, standby and maintenance 
power to the QF. Any finding under section 210(m)(5) which would 
relieve the utility from selling to a QF would be made under a separate 
standard and in a separate proceeding pursuant to Sec.  292.312 of the 
Commission's regulations. We agree, with EEI, however, that it is 
beyond the Commission's jurisdiction to determine the justness and 
reasonableness of retail rates.
    201. Also, we agree with ELCON and American Forest & Paper that the 
language in section 210(m)(5), ``competing retail electric providers,'' 
requires that QFs have available at least two competing suppliers who 
are not affiliated with the utility before relieving the utility of its 
sales obligations under section 210(m)(5). We emphasize that during a 
section 210(m)(5) proceeding, the Commission will strictly interpret 
the statutory language. We note that the Commission's regulations 
provide that a utility must interconnect with a QF, and nothing in 
section 210(m) of PURPA terminates that obligation.
    202. As to the CCC's argument that section 210(m)(5) has an 
additional state law prong that has to be met, we agree. Whether a 
utility that has an obligation to provide Standard Offer or Default 
service is ``required by state law to sell electric energy in its 
service territory'' is an issue that invokes consideration of 
particular state laws or state regulatory authority actions. 
Accordingly, the Commission believes that the issue is more 
appropriately addressed on a case-by-case basis in proceedings under 
Sec.  292.312 of the Commission's regulations rather than generically 
in this rulemaking.

L. Section 210(m)(6)--No Effect on Existing Rights and Remedies

1. NOPR
    203. Section 210(m)(6) protects the right and remedies under a 
contract or obligation in effect or pending approval before the state 
regulatory authority. In the NOPR, the Commission clarified that the 
protections provided for in section 210(m)(6) are triggered regardless 
of the stage of construction of a facility that may be the subject of 
the contract or obligation. The Commission proposed to adopt the 
language of the statute and solicited comments on whether further or 
different language and/or clarifications other than those

[[Page 64368]]

proposed should be incorporated into our regulations.
2. Comments
    204. Most of the comments received regarding the Commission's 
interpretation of section 210(m)(6) were focused on the terms 
``contract'' and ``obligation.'' EEI and PG&E argue that the terms 
``contract'' and ``obligation'' are synonymous and that an 
``obligation'' within the meaning of PURPA section 210(m)(6) thus 
refers to a specific legal arrangement between specific parties that 
establishes all the relevant and material rates, terms and conditions 
under which power will be bought and sold. They contend that 
``obligation'' must provide the same level of certainty as a contract, 
even though a contract per se may not actually be formed until 
regulatory approval is obtained. They further argue that the only 
obligations that were preserved under the savings clause were those 
obligations that (1) contain the mutual commitments of specific buyers 
and sellers of QF-generated electricity; (2) define all the relevant 
and material rates, terms and conditions of the sales; and (3) were in 
effect or pending regulatory approval on August 8, 2005.
    205. SCE supports EEI and argues that ``obligation'' should refer 
only to mutual arrangements that were sufficiently developed to include 
all relevant terms and mutual commitments of the parties and were in 
effect, or awaiting state commission approval, as of August 8, 2005.
    206. Midwest Renewable Energy Products argues that the Commission 
should clarify that any QF that was certified under 18 CFR 292.206 and 
made a filing with the relevant state regulatory authority before 
August 8, 2005 (to implement the mandatory purchase requirement) falls 
under the protection of the savings clause in section 210(m)(6), as 
having an ``obligation'' in effect as of August 8, 2005.
    207. Deere argues that EEI and SCE ignore that there can be non-
contractual legally enforceable obligations, created pursuant to a 
state's PURPA implementing scheme, which do not necessarily involve a 
single writing completely containing all material terms. Deere also 
argues that they ignore the new act's express mention of ``contracts'' 
separate from ``obligations,'' using the disjunctive ``or.'' It states 
that equating ``obligations'' to contracts would make it superfluous, 
contrary to the rules of statutory construction. Deere also states that 
Congress recognized that PURPA's purchase obligation is effectuated not 
only through contracts, but through obligations created by non-
contractual mechanisms, such as a state regulatory process.
    208. ELCON and American Forest & Paper state that the Commission 
should emphasize that even where mandatory purchase requirements are 
terminated as to new contracts, existing contracts and obligations may 
not be reopened.
3. Commission Determination
    209. The Commission will adopt the statutory language of section 
210(m)(6) into its regulations. Based on the comments received, it is 
evident that the term ``obligation'' as it is used in section 210(m)(6) 
and section 210(m)(1) needs to be clarified. Section 210(m)(6) reads, 
in relevant part, that ``Nothing in this subsection affects the rights 
and remedies of any party under any contract or obligation, in effect 
or pending approval before the appropriate State regulatory authority * 
* *.'' \80\ Section 210(m)(1) states, in relevant part, that ``no 
electric utility shall be required to enter into a new contract or 
obligation to purchase electric energy * * *.'' \81\ Because the term 
``obligation'' appears in two distinct subsections of amended section 
210(m), we believe it necessary to clarify how the Commission will 
interpret the term ``obligation.''
---------------------------------------------------------------------------

    \80\ 16 U.S.C. 824a-3(m)(3) (emphasis added).
    \81\ 16 U.S.C. 824a-3(m)(6) (emphasis added).
---------------------------------------------------------------------------

    210. The Commission has previously addressed the meaning of section 
210(m)(6) in Midwest Renewable Energy Projects, LLC.\82\ In Midwest 
Renewable, we rejected the notion offered here by EEI and PG&E that 
``contract'' and ``obligation'' are synonymous terms. We stated that 
such an interpretation would render the term ``obligation'' superfluous 
because then section 210(m)(6) would only apply to existing contracts. 
Had Congress intended section 210(m)(6) to apply to only existing 
contracts, it would not have included the term ``obligation.'' Thus, we 
found Congress intended there to be a distinction between ``contract'' 
and ``obligation.''
---------------------------------------------------------------------------

    \82\ Midwest Renewable Energy Projects, LLC, 116 FERC ] 61,017 
(2006) (Midwest Renewable).
---------------------------------------------------------------------------

    211. In Midwest Renewable, we also disagreed with the theory 
offered by EEI and PG&E in this proceeding that an ``obligation'' 
within the meaning of PURPA section 210(m)(6) refers to a specific 
legal arrangement between specific parties that establishes all the 
relevant and material rates, terms and conditions under which power 
will be bought and sold. As we stated in Midwest Renewable:

    While there appears to be some ambiguity surrounding the term 
``obligation'' in 210(m)(6), we find that the reading favored by 
protestors would eliminate the term ``or pending approval'' from the 
statutory language, and would be contrary to the well-established 
rule of statutory construction that every clause and word of a 
statute be given effect and that no clause or word be interpreted so 
as to render it superfluous, redundant, void or insignificant. To 
the contrary, we find the phrase ``or pending approval'' to be quite 
significant, as it ensures that contracts or obligations that had 
not yet been entered into but were being pursued in the context of 
the state commission proceedings that were pending on the date of 
enactment of EPAct 2005 will fall within savings clause.\83\
---------------------------------------------------------------------------

    \83\ Midwest Renewable at P 14.

    212. When a utility refuses to enter into a contract with a QF and 
the QF seeks state regulatory authority help to enforce its PURPA 
regulations, a non-contractual legally enforceable obligation may be 
created pursuant to the state's implementation of PURPA. Such 
obligations do not necessarily involve a single writing completely 
containing all material terms. How QFs initiate the PURPA process 
varies from state to state. Thus, to narrowly define ``obligation'' to 
encompasses only a specific legal arrangement with all the relevant and 
material rates, terms and conditions established may be at odds with a 
state's implementation of PURPA. Accordingly, the Commission views the 
term ``obligation'' as a ``legally enforceable obligation'' which is 
established through a state's implementation of PURPA. A QF that had 
initiated, prior to August 8, 2005, a state PURPA proceeding that may 
result in a contract or legally enforceable obligation would be 
considered to have triggered an ``obligation'' with the electric 
utility regarding section 210(m)(6).
    213. With regard to section 210(m)(1), ``obligation'' will be 
viewed as a ``legally enforceable obligation'' and a QF that has 
initiated a state's PURPA proceeding that may result in a legally 
enforceable contract or obligation prior to the applicable electric 
utility filing its petition for relief pursuant to Sec.  292.310 of the 
Commission's regulations will be considered to have triggered an 
``obligation'' with the electric utility. Whether or not the utility's 
date of filing a petition for relief pursuant to Sec.  292.310 of the 
Commission's regulations becomes the end date for the mandatory 
purchase requirement depends on whether the Commission makes a final 
determination that the criteria for granting relief have been 
satisfied, and the Commission

[[Page 64369]]

terminates the mandatory purchase requirement.

M. Section 210(m)(7)--Recovery of Costs

1. NOPR
    214. In the NOPR the Commission stated that it did not believe that 
regulations are necessary at this time to ensure that an electric 
utility that purchases electric energy or capacity from a QF recovers 
all prudently incurred costs associated with the purchase as described 
in section 210(m)(7). Nonetheless, the Commission requested comments on 
whether there is a need for the Commission to consider such a 
regulation.
2. Comments
    215. EEI, Allegheny, Alliant, Montana-Dakota, PSNM and TNMP state 
that the Commission should adopt the statutory language in section 
210(m)(7) into its regulations and provide for case-by-case relief 
where required. Central Vermont and Progress Energy argue that the 
Commission should establish wholesale and retail riders to permit 
consistent, complete and timely recovery of the utility's prudently-
incurred QF purchase costs. They state that the states and the 
Commission often use different methodologies for allocating costs 
between the jurisdictions and the fact that utilities do not 
traditionally have general rate cases before the Commission and the 
state commissions every year. Therefore, when a QF purchase is made in 
a year without a general rate case at wholesale and retail, those costs 
are not recovered via the utility's retail or wholesale rates.
3. Commission Determination
    216. We adopt our proposal in the NOPR. We do not find Central 
Vermont and Progress Energy's argument persuasive. No evidence has been 
presented that utilities will not be able to recover costs associated 
with purchases of electric energy or capacity from a QF. Until such 
time, we are reluctant to review an issue that should be handled by the 
states in the first instance. Therefore, we see no reason to act now.

N. Other Issues

1. Contract Termination
a. NOPR
    217. In the NOPR, the Commission proposed to find that when a 
contract terminates by its own accord, an electric utility is not 
compelled to enter into a new, successor contract with the QF if the 
Commission has made a finding that section 210(m)(1) has been 
satisfied. The Commission further clarified that QF status does not 
mean that an electric utility has an ``obligation'' to purchase from 
the QF in perpetuity, or that a QF has the right to demand that the 
utility purchase at avoided-cost rates in perpetuity.
b. Comments
    218. AEP, Deere, EEI, Entergy, Occidental, PPL, and PSNM agree with 
the NOPR's position. AEP and Occidental seek clarification or expansion 
of the NOPR's position. AEP believes that ``terminates by its own 
accord'' should also include the fact that a contract may terminate 
mutually between the parties and the electric utility would not be 
compelled to enter into another contract with that QF. Occidental seeks 
clarification that the proposed rules do not abrogate existing 
contracts. As such, Occidental wants the terms ``terminates by its own 
accord'' clarified to mean ``expires by its own terms.''
c. Commission Determination
    219. The Commission will adopt the NOPR's proposal regarding 
contract termination in the context of finding made pursuant to section 
210(m)(1). Two commenters, AEP and Occidental, seek clarification of 
the phrase ``terminates by its own accord.'' AEP points out that some 
contracts may be terminated by mutual agreement between the parties to 
the contract and believes this type of contract termination should also 
be included in the Commission's interpretation of ``terminates by its 
own accord.'' As long as there is mutual agreement between a QF and the 
electric utility to terminate a contract, then the Commission finds 
that the electric utility is not compelled to enter into a new, 
successor contract with the QF. Occidental requests clarification that 
the NOPR does not abrogate existing contracts and thus wants the phrase 
``terminates by its own accord'' to be clarified to mean ``expires by 
its own terms.'' We will also clarify that the proposed rules adopted 
in this Final Rule do not abrogate existing contracts. Thus, under the 
Final Rule, a QF contract is to remain in effect until it terminates by 
mutual agreement or by its own terms. We note, however, that there may 
be contracts that contain provisions that legislation, such as EPAct 
2005, or a Final Rule, such as this one, trigger a termination clause 
in the contract. To the extent that the parties to a contract cannot 
agree whether a termination clause has been triggered, the issue will 
be best determined in an individual case-specific proceeding in which 
the particulars of the contract can be examined.
2. Effective Date of Contracts
a. NOPR
    220. In the NOPR, the Commission proposed to find that if a 
contract is entered into after August 8, 2005, the date of EPAct 2005 
enactment, but before the Commission has determined that an electric 
utility is entitled to relief from the mandatory purchase requirement, 
the contract already entered into will be treated as though it was in 
effect on August 8, 2005 for purposes of section 210(m)(1).
b. Comments
    221. EEI, SCE, and PG&E disagree with the Commission's proposed 
statutory construction. They argue that once a utility is granted 
relief from the PURPA purchase obligation, it should not be required to 
honor any QF contracts entered into after August 8, 2005. EEI, SCE, and 
PG&E argue that this is the only determination that is consistent with 
the clear intent and express language of EPAct 2005, setting August 8, 
2005 as the end date of the PURPA purchase obligation for utilities in 
appropriate markets. They state that this finding is also critical to 
preventing a QF ``gold rush,'' i.e., QFs with expiring contracts and/or 
new QFs may seek to obtain a contract prior to the Commission making 
the requisite finding under section 210(m)(1) that would relieve 
electric utilities like SCE and PG&E from the mandatory purchase 
requirement.
    222. In the alternative, SCE and PG&E state that if the Commission 
believes that some contracts entered into after August 8, 2005 must be 
honored, it should adopt a rule that ensures that electric utilities 
either: (1) are not compelled by their state commissions to enter into 
new contracts or extend existing contracts after a petition for relief 
is filed pursuant to section 210(m) (PURPA Petition) until and unless 
the PURPA Petition is denied; or (2) are not required to honor 
contracts (or contract extensions) entered into after a PURPA Petition 
is filed, if the PURPA Petition is subsequently granted. Under this 
approach, contracts entered into between August 8, 2005, and the filing 
of a PURPA Petition would be honored, but there would be no ``gold 
rush'' incentive created by the filing of the utility's PURPA Petition.
    223. OG&E proposes that when a QF attempts to establish a contract 
or obligation after August 8, 2005, a utility should have a reasonable 
opportunity to demonstrate in a filing at the

[[Page 64370]]

Commission that the utility satisfies one of the tests set forth in 
section 210(m)(1). A QF attempting to establish a new obligation would 
be required to provide the utility with formal notice. Within 60 days 
of such notice, the utility could file a PURPA Petition if it believed 
the requisite market conditions existed.
    224. The CCC, and the APPA and LPPC argue that the language is 
clear that the ability of a utility to have its mandatory purchase 
requirement terminated is dependent on a Commission determination that 
a nondiscriminatory market satisfying the statutory conditions exists. 
Until this determination is made, the mandatory purchase requirement 
remains in effect. Deere adds that generation project financing is 
long-term in nature, and contractual and non-contractual legally 
enforceable obligations are typically for up to 20 years or longer so 
as to support the long-term financing. The possibility of a new QF 
contract or obligation being negated, either ab initio or at the time 
of a section 210(m) order, would leave the remaining term of the 
financing arrangements unsupported.
    225. The CPUC states that should the Commission adopt a rule as 
suggested by SCE and PG&E, the rule should affirm that state 
commissions retain oversight of such terminable contracts to ensure 
utilities afford equal treatment of all QF contracts.
c. Commission Determination
    226. Section 210(m)(1) states, in relevant part, that, after August 
8, 2005, no electric utility shall be required to enter into a new 
contract or obligation to purchase electric energy from QFs if the 
Commission finds that the QF has nondiscriminatory access to either 
section 210(m)(1)(A), (B), or (C). The Commission's interpretation of 
this statutory language, as expressed in the NOPR, was to treat new 
contracts or obligations entered into after August 8, 2006, but before 
the Commission makes a finding, as contracts or obligations in effect 
prior to August 8, 2005. This interpretation is consistent with the 
Commission's policy of not abrogating contracts. Moreover, this is 
consistent with the statute. Under the statue, the purchase obligation 
is not terminated on August 8, 2005, but only when the Commission 
terminates the obligation, after an electric utility filing. Until an 
electric utility makes a filing pursuant to the regulations, and the 
Commission makes the required findings, the purchase obligations 
remains in effect. A different statutory interpretation, such as the 
one advocated by EEI, would lead to QF contracts being abrogated 
potentially several years after execution. We believe Congress did not 
intend for this after-the-fact abrogation of contracts to occur. Thus, 
we believe the NOPR's interpretation of this statutory language is 
reasonable.
    227. Nonetheless, some of EEI, SCE, and PG&E's arguments are 
compelling. The Commission's interpretation could potentially lead to 
what these commenters describe as a ``gold rush'' of QFs seeking 
contracts once an electric utility files for relief. Since the 
Commission has 90 days in which to render a finding, QFs would be able 
to seek new contracts or obligations from the electric utility upon 
learning of the electric utility's relief application until the 
Commission makes a finding, and the electric utility would be subject 
to the mandatory purchase requirement even if the Commission eventually 
made a finding removing the mandatory purchase requirement. We believe 
this possibility would undermine and circumvent the intent of section 
210(m)(1).
    228. In order to prevent the possibility of a ``gold rush,'' the 
Commission will modify its proposed interpretation. Rather than treat 
new contracts and obligations entered into after a PURPA petition is 
filed but before the Commission renders a finding as in effect prior to 
August 8, 2005, the Commission will temporarily suspend an electric 
utility's obligation to enter into new contracts and obligations upon 
the filing of its PURPA petition. When an electric utility files its 
PURPA petition, that electric utility will not be obligated to enter 
into new contracts or obligations with QFs as of the date its PURPA 
petition is filed. If the Commission finds that section 210(m)(1) has 
been met, then the mandatory purchase requirement for that electric 
utility ends as of the date of the PURPA petition. However, if the 
Commission finds that the requirements of section 210(m)(1) have not 
been met, then the electric utility's obligation to enter into new 
contracts or obligations is reinstated as of the date of a Commission 
order and a QF seeking a new contract or obligation shall not be 
denied. As such, a new contract or obligation in this situation will be 
treated as in effect prior to August 8, 2005. We believe this 
modification will remove any ``gold rush'' incentive QFs may have and 
preserves the integrity of the mandatory purchase requirement and 
contracts entered into between QFs and electric utilities. We note, 
however, that to the extent that a QF had a contract or obligation 
pending approval before an appropriate state regulatory authority, or 
non-regulated utility on August 8, 2005, a finding by that state 
regulatory authority or non-regulated utility that an electric utility 
has an obligation to purchase or must enter into a contract is binding.
    229. The Commission recognizes that there is a possibility of 
electric utilities filing PURPA Petitions one right after another in 
order to invoke the temporary suspension period of the mandatory 
purchase requirement. Repeated section 210(m)(3) applications by 
utilities intended will not be tolerated and the Commission will take 
appropriate action if utilities abuse the process.

V. Information Collection Statement

    The following collections of information referenced in this Final 
Rule have been submitted to the Office of Management and Budget (OMB) 
for review under section 3507(d) of the Paperwork Reduction Act of 
1995.\84\ OMB's regulations require OMB to approve certain information 
collection requirements imposed by agency rule.\85\ Upon approval of a 
collection of information, OMB will assign an OMB control number and 
expiration date. Respondents subject to the filing requirements of this 
Final Rule will not be penalized for failing to respond to these 
collections of information unless the collections of information 
display a valid OMB control number or the Commission had provided a 
justification as why the control number should be displayed.
---------------------------------------------------------------------------

    \84\ See 44 U.S.C. 3507(d).
    \85\ 5 CFR 1320.11.
---------------------------------------------------------------------------

    In the NOPR the Commission provided the following burden estimates 
for complying with the rule as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of       Number of       Hours per     Total annual
            Data collection FERC-556                respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
Sec.   292.310..................................             230               1               2             460
Sec.   292.312..................................             230               1               2             460

[[Page 64371]]


Sec.   292.313..................................             630               1               3           1,890
¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤
    Totals......................................             860               1  ..............           2,810
----------------------------------------------------------------------------------------------------------------

Information Collection Costs: Because of the regional differences and 
the various staffing levels that have been involved in preparing the 
documentation (legal, technical and support) the Commission is using 
the hourly rate of $150 to estimate the costs for filing and other 
administrative processes (reviewing instructions, searching data 
sources, completing and transmitting the collection of information). 
The estimated cost is anticipated to be $421,500.
    In response to the NOPR, the Commission received no comments 
concerning its estimates for burden and costs and will use those 
estimates here in the final rule. Where commenters believed that a 
disproportionate amount of burden had been placed on certain entities 
in order to meet statutory criteria, the Commission has addressed this 
issue elsewhere in the rule and will not repeat its responses here. The 
actions taken in the Final Rule should ameliorate their concerns of a 
significant shift in the burden.
    Title: FERC-556 ``Small Power Production and Cogeneration 
Facilities''.
    Action: Proposed collections.
    OMB Control Nos.: 1902-0075.
    Respondents: Businesses or other for profit.
    Frequency of responses: Annually and on occasion.
    Necessity of the Information: The Commission amends its regulations 
to implement Section 210(m) of PURPA which was enacted in Section 1253 
of the EPACT 2005 to implement a process by which electric utilities 
may apply for removal of the requirement that they enter into new 
contracts or obligations for the purchase of electric energy from 
qualifying facilities (QFs) after August 8, 2005. The Final Rule is in 
response to a Congressional mandate that addresses complaints of 
electric utilities of having to pay contractually high prices for power 
they did not need. In adding Section 210, Congress described a standard 
of relief for the requirement that electric utilities enter into new 
obligations to purchase electric power from QFs.
    Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street, NE., Washington, DC 20426 [Attention: 
Michael Miller, Office of the Executive Director, Phone (202)502-8415, 
fax: (202)273-0873, e-mail: michael.miller@ferc.gov] For submitting 
comments concerning the collection of information(s) and the associated 
burden estimates, please send your comments to the contact listed above 
and to the Office of Management and Budget, Office of Information and 
Regulatory Affairs, Washington, DC 20503, Attention: Desk Officer for 
the Federal Energy Regulatory Commission; Phone: (202) 395-4650, fax: 
(202) 395-7285.

VI. Environmental Analysis

    230. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment. The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment. As explained above, this rule is clarifying in nature. It 
interprets several amendments made to PURPA by EPAct 2005, and 
clarifies the applicability of these amendments to electric utilities 
and QFs; it does not substantially change the effect of the 
legislation. Accordingly, no environmental consideration is necessary.

VII. Regulatory Flexibility Act Certification

    231. The Regulatory Flexibility Act of 1980 (RFA) \86\ generally 
requires a description and analysis of rules that will have significant 
economic impact on a substantial number of small entities and where 
notice and comment rulemaking is required. Certain rules are exempt 
from notice and comment from the RFA requirements; exempt rules include 
interpretative rules, general statements of policy, or rules of agency 
organization procedure or practice.\87\ Interpretative rules 
``generally interpret the intent expressed by Congress, where an agency 
does not insert its own judgments or interpretations in implementing a 
rule and simply regurgitates statutory language.'' \88\ The rule we are 
proposing in this docket is mostly an interpretative rule and thus, 
does not require a regulatory flexibility analysis. The exception, 
however, is the Commission's establishment of a rebuttable presumption 
that small QFs, with a net capacity no greater than 20 MW, do not have 
nondiscriminatory access to wholesale markets described in section 
210(m)(1)(A), (B), or (C). Unless an electric utility seeking the right 
to terminate its requirement to purchase small QF power specifically 
rebuts this small QF presumption, and that electric utility's request 
is granted by the Commission, a small QF would continue to be eligible 
to require the electric utility to purchase its electric energy. With 
this 20 MW rebuttable presumption the Commission reduces the burden, 
i.e., the cost of participating in termination proceedings, of small 
QFs to participate in the section 210(m)(3) proceedings. In fact, the 
Commission is being generous in allowing small QFs up to 20 MWs to have 
a rebuttable presumption given that the Small Business Administration 
considers ``small'' to mean 4 MW or less.
---------------------------------------------------------------------------

    \86\ 5 U.S.C. 601-12.
    \87\ 5 U.S.C. 553(b)(A).
    \88\ ``How to Comply with the Regulatory Flexibility Act: A 
Guide for Government Agencies'', Small Business Administration, 
Office of Advocacy, P.5, May 2003.
---------------------------------------------------------------------------

VIII. Document Availability

    232. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 

Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. 
Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426.
    233. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    234. User assistance is available for eLibrary and the FERC's Web 
site during

[[Page 64372]]

normal business hours from our Help line at (202) 502-8222 or the 
Public Reference Room at (202) 502-8371 Press 0, TTY (202) 502-8659. E-
mail the Public Reference Room at public.referenceroom@ferc.gov.

IX. Effective Date

    235. These regulations are effective January 2, 2007. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 251 of the Small Business 
Regulatory Enforcement Fairness Act of 1996. The Commission will submit 
the Final Rule to both houses of Congress and the General Accounting 
Office.

List of Subjects in 18 CFR Part 292

    Electric power, Electric power plants, Electric utilities.

    By the Commission.
Magalie R. Salas,
Secretary.

0
In consideration of the foregoing, the Commission amends part 292, 
chapter I, title 18, Code of Federal Regulations, as follows.

PART 292--REGULATIONS UNDER SECTIONS 201 AND 210 OF THE PUBLIC 
UTILITY REGULATORY POLICIES ACT OF 1978 WITH REGARD TO SMALL POWER 
PRODUCTION AND COGENERATION

0
1. The authority citation for part 292 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.


0
2. Section 292.303 is revised to read as follows:


Sec.  292.303  Electric utility obligations under this subpart.

    (a) Obligation to purchase from qualifying facilities. Each 
electric utility shall purchase, in accordance with Sec.  292.304, 
unless exempted by Sec.  292.309 and Sec.  292.310, any energy and 
capacity which is made available from a qualifying facility:
    (1) Directly to the electric utility; or
    (2) Indirectly to the electric utility in accordance with paragraph 
(d) of this section.
    (b) Obligation to sell to qualifying facilities. Each electric 
utility shall sell to any qualifying facility, in accordance with Sec.  
292.305, unless exempted by Sec.  292.312, energy and capacity 
requested by the qualifying facility.
    (c) Obligation to interconnect. (1) Subject to paragraph (c)(2) of 
this section, any electric utility shall make such interconnections 
with any qualifying facility as may be necessary to accomplish 
purchases or sales under this subpart. The obligation to pay for any 
interconnection shall be determined in accordance with Sec.  292.306.
    (2) No electric utility is required to interconnect with any 
qualifying facility if, solely by reason of purchases or sales over the 
interconnection, the electric utility would become subject to 
regulation as a public utility under part II of the Federal Power Act.
    (d) Transmission to other electric utilities. If a qualifying 
facility agrees, an electric utility which would otherwise be obligated 
to purchase energy and capacity from such qualifying facility may 
transmit the energy or capacity to any other electric utility. Any 
electric utility to which such energy or capacity is transmitted shall 
purchase such energy or capacity under this subpart as if the 
qualifying facility were supplying energy or capacity directly to such 
electric utility. The rate for purchase by the electric utility to 
which such energy is transmitted shall be adjusted up or down to 
reflect line losses pursuant to Sec.  292.304(e)(4) and shall not 
include any charges for transmission.
    (e) Parallel operation. Each electric utility shall offer to 
operate in parallel with a qualifying facility, provided that the 
qualifying facility complies with any applicable standards established 
in accordance with Sec.  292.308.


0
3. Sections 292.309 through 292.314 are added to read as follows:
Sec.
292.309 Termination of obligation to purchase from qualifying 
facilities.
292.310 Procedures for utilities requesting termination of 
obligation to purchase from qualifying facilities.
292.311 Reinstatement of obligation to purchase.
292.312 Termination of obligation to sell to qualifying facilities.
292.313 Reinstatement of obligation to sell.
292.314 Existing rights and remedies.


Sec.  292.309  Termination of obligation to purchase from qualifying 
facilities.

    (a) After August 8, 2005, an electric utility shall not be 
required, under this part, to enter into a new contract or obligation 
to purchase electric energy from a qualifying cogeneration facility or 
a qualifying small power production facility if the Commission finds 
that the qualifying cogeneration facility or qualifying small power 
facility production has nondiscriminatory access to:
    (1)(i) Independently administered, auction-based day ahead and real 
time wholesale markets for the sale of electric energy; and
    (ii) Wholesale markets for long-term sales of capacity and electric 
energy; or
    (2)(i) Transmission and interconnection services that are provided 
by a Commission-approved regional transmission entity and administered 
pursuant to an open access transmission tariff that affords 
nondiscriminatory treatment to all customers; and
    (ii) Competitive wholesale markets that provide a meaningful 
opportunity to sell capacity, including long-term and short-term sales, 
and electric energy, including long-term, short-term and real-time 
sales, to buyers other than the utility to which the qualifying 
facility is interconnected. In determining whether a meaningful 
opportunity to sell exists, the Commission shall consider, among other 
factors, evidence of transactions within the relevant market; or
    (3) Wholesale markets for the sale of capacity and electric energy 
that are, at a minimum, of comparable competitive quality as markets 
described in paragraphs (a)(1) and (a)(2) of this section.
    (b) For purposes of Sec.  292.309(a), a renewal of a contract that 
expires by its own terms is a ``new contract or obligation'' without a 
continuing obligation to purchase under an expired contract.
    (c) For purposes of Sec.  292.309(a)(1), (2) and (3), with the 
exception of paragraph (d) of this section, there is a rebuttable 
presumption that a qualifying facility has nondiscriminatory access to 
the market if it is eligible for service under a Commission-approved 
open access transmission tariff or Commission-filed reciprocity tariff, 
and Commission-approved interconnection rules. If the Commission 
determines that a market meets the criteria of Sec.  292.309(a)(1), (2) 
or (3), and if a qualifying facility in the relevant market is eligible 
for service under a Commission-approved open access transmission tariff 
or Commission-filed reciprocity tariff, a qualifying facility may seek 
to rebut the presumption of access to the market by demonstrating, 
inter alia, that it does not have access to the market because of 
operational characteristics or transmission constraints.
    (d)(1) For purposes of Sec.  292.309(a)(1), (2), and (3), there is 
a rebuttable presumption that a qualifying facility with a capacity at 
or below 20 megawatts does not have nondiscriminatory access to the 
market.
    (2) For purposes of implementing paragraph (d)(1) of this section, 
the Commission will not be bound by the one-mile standard set forth in 
Sec.  292.204(a)(2).

[[Page 64373]]

    (e) Midwest Independent Transmission System Operator (Midwest ISO), 
PJM Interconnection, L.L.C. (PJM), ISO New England, Inc. (ISO-NE), and 
New York Independent System Operator (NYISO) qualify as markets 
described in Sec.  292.309(a)(1)(i) and (ii), and there is a rebuttable 
presumption that qualifying facilities with a capacity greater than 20 
megawatts have nondiscriminatory access to those markets through 
Commission-approved open access transmission tariffs and 
interconnection rules, and that electric utilities that are members of 
such regional transmission organizations or independent system 
operators (RTO/ISOs) should be relieved of the obligation to purchase 
electric energy from the qualifying facilities. A qualifying facility 
may seek to rebut this presumption by demonstrating, inter alia, that:
    (1) The qualifying facility has certain operational characteristics 
that effectively prevent the qualifying facility's participation in a 
market; or
    (2) The qualifying facility lacks access to markets due to 
transmission constraints. The qualifying facility may show that it is 
located in an area where persistent transmission constraints in effect 
cause the qualifying facility not to have access to markets outside a 
persistently congested area to sell the qualifying facility output or 
capacity.
    (f) The Electric Reliability Council of Texas (ERCOT) qualifies as 
a market described in Sec.  292.309(a)(3), and there is a rebuttable 
presumption that qualifying facilities with a capacity greater than 20 
megawatts have nondiscriminatory access to that market through Public 
Utility Commission of Texas (PUCT) approved open access protocols, and 
that electric utilities that operate within ERCOT should be relieved of 
the obligation to purchase electric energy from the qualifying 
facilities. A qualifying facility may seek to rebut this presumption by 
demonstrating, inter alia, that:
    (1) The qualifying facility has certain operational characteristics 
that effectively prevent the qualifying facility's participation in a 
market; or
    (2) The qualifying facility lacks access to markets due to 
transmission constraints. The qualifying facility may show that it is 
located in an area where persistent transmission constraints in effect 
cause the qualifying facility not to have access to markets outside a 
persistently congested area to sell the qualifying facility output or
    (g) The California Independent System Operator and Southwest Power 
Pool, Inc. satisfy the criteria of Sec.  292.309(a)(2)(i).
    (h) No electric utility shall be required, under this part, to 
enter into a new contract or obligation to purchase from or sell 
electric energy to a facility that is not an existing qualifying 
cogeneration facility unless the facility meets the criteria for new 
qualifying cogeneration facilities established by the Commission in 
Sec.  292.205.
    (i) For purposes of Sec.  292.309(h), an ``existing qualifying 
cogeneration facility'' is a facility that:
    (1) Was a qualifying cogeneration facility on or before August 8, 
2005; or
    (2) Had filed with the Commission a notice of self-certification or 
self-recertification, or an application for Commission certification, 
under Sec.  292.207 prior to February 2, 2006.
    (j) For purposes of Sec.  292.309(h), a ``new qualifying 
cogeneration facility'' is a facility that satisfies the criteria for 
qualifying cogeneration facilities pursuant to Sec.  292.205.


Sec.  292.310  Procedures for utilities requesting termination of 
obligation to purchase from qualifying facilities.

    (a) An electric utility may file an application with the Commission 
for relief from the mandatory purchase requirement under Sec.  
292.303(a) pursuant to this section on a service territory-wide basis. 
Such application shall set forth the factual basis upon which relief is 
requested and describe why the conditions set forth in Sec.  
292.309(a)(1), (2) or (3) have been met. After notice, including 
sufficient notice to potentially affected qualifying cogeneration 
facilities and qualifying small power production facilities, and an 
opportunity for comment, the Commission shall make a final 
determination within 90 days of such application regarding whether the 
conditions set forth in Sec.  292.309(a)(1), (2) or (3) have been met.
    (b) Sufficient notice shall mean that an electric utility must 
identify with names and addresses all potentially affected qualifying 
facilities in an application filed pursuant to paragraph (a).
    (c) All potentially affected qualifying facilities shall include:
    (1) Those qualifying facilities that have existing power purchase 
contracts with the applicant;
    (2) Other qualifying facilities that sell their output to the 
applicant or that have pending self-certification or Commission 
certification with the Commission for qualifying facility status 
whereby the applicant will be the purchaser of the qualifying 
facility's output;
    (3) Any developer of generating facilities with whom the applicant 
has agreed to enter into power purchase contracts, as of the date of 
the application filed pursuant to this section, or are in discussion, 
as of the date of the application filed pursuant to this section, with 
regard to power purchase contacts;
    (4) The developers of facilities that have pending state avoided 
cost proceedings, as of the date of the application filed pursuant to 
this section; and
    (5) Any other qualifying facilities that the applicant reasonably 
believes to be affected by its application filed pursuant to paragraph 
(a) of this section.
    (d) The following information must be filed with an application:
    (1) Identify whether applicant seeks a finding under the provisions 
of Sec.  292.309(a)(1), (2), or (3).
    (2) A narrative setting forth the factual basis upon which relief 
is requested and describing why the conditions set forth in Sec.  
292.309(a)(1), (2), or (3) have been met. Applicant should also state 
in its application whether it is relying on the findings or rebuttable 
presumptions contained in Sec.  292.309(e), (f) or (g). To the extent 
applicant seeks relief from the purchase obligation with respect to a 
qualifying facility 20 megawatts or smaller, and thus seeks to rebut 
the presumption in Sec.  292.309(d), applicant must also set forth, and 
submit evidence of, the factual basis supporting its contention that 
the qualifying facility has nondiscriminatory access to the wholesale 
markets which are the basis for the applicant's filing.
    (3) Studies, including the applicant's long-term transmission plan, 
conducted by applicant, or the RTO, ISO or other relevant entity, that 
show:
    (i) Transmission constraints by path, element or other level of 
comparable detail that have occurred and/or are known and expected to 
occur, and any proposed mitigation including transmission construction 
plans;
    (ii) Levels of congestion, if available;
    (iii) Relevant system impact studies for the generation 
interconnections, already completed;
    (iv) Other information pertinent to showing whether transfer 
capability is available; and
    (v) The appropriate link to applicant's OASIS, if any, from which a 
qualifying facility may obtain applicant's available transmission 
capacity (ATC) information.
    (4) Describe the process, procedures and practices that qualifying 
facilities interconnected to the applicant's system must follow to 
arrange for the transmission service to transfer power to purchasers 
other than the applicant. This description must include the

[[Page 64374]]

process, procedures and practices of all distribution, transmission and 
regional transmission facilities necessary for qualifying facility 
access to the market.
    (5) If qualifying facilities will be required to execute new 
interconnection agreements, or renegotiate existing agreements so that 
they can effectuate wholesale sales to third-party purchasers, explain 
the requirements, charges and the process to be followed. Also, explain 
any differences in these requirements as they apply to qualifying 
facilities compared to other generators, or to applicant-owned 
generation.
    (6) Applicants seeking a Commission finding pursuant to Sec.  
292.309(a)(2) or (3), except those applicants located in ERCOT, also 
must provide evidence of competitive wholesale markets that provide a 
meaningful opportunity to sell capacity, including long-term and short-
term sales, and electric energy, including long-term, short-term and 
real-time sales, to buyers other than the utility to which the 
qualifying facility is interconnected. In demonstrating that a 
meaningful opportunity to sell exists, provide evidence of transactions 
within the relevant market. Applicants must include a list of known or 
potential purchasers, e.g., jurisdictional and non-jurisdictional 
utilities as well as retail energy service providers.
    (7) Signature of authorized individual evidencing the accuracy and 
authenticity of information provided by applicant.
    (8) Person(s) to whom communications regarding the filed 
information may be addressed, including name, title, telephone number, 
and mailing address.


Sec.  292.311  Reinstatement of obligation to purchase.

    At any time after the Commission makes a finding under Sec. Sec.  
292.309 and 292.310 relieving an electric utility of its obligation to 
purchase electric energy, a qualifying cogeneration facility, a 
qualifying small power production facility, a State agency, or any 
other affected person may apply to the Commission for an order 
reinstating the electric utility's obligation to purchase electric 
energy under this section. Such application shall set forth the factual 
basis upon which the application is based and describe why the 
conditions set forth in Sec.  292.309(a), (b) or (c) are no longer met. 
After notice, including sufficient notice to potentially affected 
electric utilities, and opportunity for comment, the Commission shall 
issue an order within 90 days of such application reinstating the 
electric utility's obligation to purchase electric energy under this 
section if the Commission finds that the conditions set forth in Sec.  
292.309(a), (b), or (c) which relieved the obligation to purchase, are 
no longer met.


Sec.  292.312  Termination of obligation to sell to qualifying 
facilities.

    (a) Any electric utility may file an application with the 
Commission for relief from the mandatory obligation to sell under this 
section on a service territory-wide basis or a single qualifying 
facility basis. Such application shall set forth the factual basis upon 
which relief is requested and describe why the conditions set forth in 
paragraphs (b)(1) and (b)(2) of this section have been met. After 
notice, including sufficient notice to potentially affected qualifying 
facilities, and an opportunity for comment, the Commission shall make a 
final determination within 90 days of such application regarding 
whether the conditions set forth in paragraphs (b)(1) and (b)(2) of 
this section have been met.
    (b) After August 8, 2005, an electric utility shall not be required 
to enter into a new contract or obligation to sell electric energy to a 
qualifying small power production facility, an existing qualifying 
cogeneration qualifying facility, or a new qualifying cogeneration 
facility if the Commission has found that;
    (1) Competing retail electric suppliers are willing and able to 
sell and deliver electric energy to the qualifying cogeneration 
facility or qualifying small power production facility; and
    (2) The electric utility is not required by State law to sell 
electric energy in its service territory.


Sec.  292.313  Reinstatement of obligation to sell.

    At any time after the Commission makes a finding under Sec.  
292.312 relieving an electric utility of its obligation to sell 
electric energy, a qualifying cogeneration facility, a qualifying small 
power production facility, a State agency, or any other affected person 
may apply to the Commission for an order reinstating the electric 
utility's obligation to purchase electric energy under this section. 
Such application shall set forth the factual basis upon which the 
application is based and describe why the conditions set forth in 
Paragraph (b)(1) and (b)(2) of this section are no longer met. After 
notice, including sufficient notice to potentially affected utilities, 
and opportunity for comment, the Commission shall issue an order within 
90 days of such application reinstating the electric utility's 
obligation to sell electric energy under this section if the Commission 
finds that the conditions set forth in paragraphs (b)(1) and (b)(2) of 
this section are no longer met.


Sec.  292.314  Existing rights and remedies.

    Nothing in this section affects the rights or remedies of any party 
under any contract or obligation, in effect or pending approval before 
the appropriate State regulatory authority or non-regulated electric 
utility on or before August 8, 2005, to purchase electric energy or 
capacity from or to sell electric energy or capacity to a qualifying 
cogeneration facility or qualifying small power production facility 
under this Act (including the right to recover costs of purchasing 
electric energy or capacity).

    Note: The following appendix will not be published in the Code 
of Federal Regulations.

Appendix A: List of Petitioners Requesting Clarification or Submitting 
Comments

AES Shady Point, LLC (AES Shady Point)
Albers, John D. (Mr. Albers)
Allegheny Power (Allegheny)
Alliant Energy Corporate Services, Inc. (Alliant)
American Chemistry Council
American Electric Power Service Corporation (AEP)
American Energy Company
American Forest and Paper Association (American Forest & Paper)
American Iron and Steel Institute
American Petroleum Institute
American Public Power Association and Large Public Power Council 
(APPA)
American Wind Energy Association (AWEA)
Caithness Energy, LLC (Caithness)
California Cogeneration Council (CCC)
California Independent System Operator Corporation (CAISO)
Central Hudson Gas & Electric Corporation, Consolidated Edison 
Company of New York, Inc., LIPA, New York Power Authority, New York 
State Electric & Gas Corporation, Orange and Rockland Utilities, 
Inc., and Rochester Gas and Electric Corporation (New York 
Transmission Owners)
Central Vermont Public Service Corporation and Green Mountain Power 
Corporation (Central Vermont)
Coalition of Midwest Transmission Customers (Midwest Transmission 
Customers)
Cogeneration Association of California and Energy Producers and 
Users Coalition (Cogeneration Association of California)
Cogeneration Coalition of Washington
Congressmen Boucher, Brown and Pickering
Consolidated Edison Company of New York, Inc. (ConEd)
Constellation Energy Group, Inc. (Constellation)
Council of Industrial Boiler Owners (CIBO)
Deere & Company (Deere)
Direct Energy Services, LLC (Direct Energy)
Dow Chemical Company (Dow)

[[Page 64375]]

Edison Electric Institute (EEI)
Electricity Consumers Resource Council (ELCON)
Electric Power Supply Association (EPSA)
Entergy Services, Inc. (Entergy)
Environmental Law and Policy Center
Exelon Corporation (Exelon)
The Fertilizer Institute
FirstEnergy Corp. (FirstEnergy)
Florida Industrial Cogeneration Association (Florida Industrial 
Cogeneration)
Granite State Hydropower Association, Inc. and Vermont Independent 
Power Producers Association (Granite State)
Independent Energy Producers Association of California (Independent 
Energy Producers)
Industrial Energy Consumers of America (Industrial Energy Consumers)
Landfill Gas Coalition
Louisiana Energy Users Group (LEUG)
Midwest Renewable Energy Projects, LLC (Midwest Renewable Energy 
Projects)
Missouri River Energy Services (Missouri River)
Midwest Transmission Customers
Modesto Irrigation District (Modesto Irrigation)
Montana-Dakota Utilities Co. (Montana-Dakota)
National Grid USA (National Grid)
National Petrochemical & Refiners Association (NPRA)
National Rural Electric Cooperative Association (NRECA)
Nelson Industrial Steam Company's Industrial Participants (NISCO)
New York Independent System Operator, Inc. (NYISO)
NSTAR Electric & Gas Corporation (NSTAR)
Occidental Chemical Corporation (Occidental)
Oklahoma Corporation Commission
Oklahoma Gas and Electric Company (OG&E)
Ottinger, Richard L. (Mr. Ottinger)
Pacific Gas and Electric Company (PG&E)
PacifiCorp
PJM Interconnection, LLC (PJM)
PJM Transmission Owners
PPL Electric Utilities Corporation (PPL)
Progress Energy, Inc. (Progress Energy)
Public Interest Organizations (PIOs) (Center for Energy Efficiency & 
Renewable Technologies, Delaware Division of the Public Advocate, 
Environmental Law & Policy Center, Interwest Energy Alliance, Izaak 
Walton League of America, Natural Resources Defense Council, 
Northwest Energy Coalition, Office of the Ohio Consumers' Counsel, 
Pace Energy Project, Project for Sustainable FERC Energy Policy, 
West Wind Wires, and Western Resource Advocates)
Public Interest and Renewable Energy Organizations
Public Power Council
Public Service Company of New Mexico (PSNM) jointly with Texas-New 
Mexico Power Company (TNP)
Public Utilities Commission of the State of California (CPUC)
Public Utility Commission of Texas (PUCT)
Reliant Energy, Inc. (Reliant)
Senators Alexander, Carper and Collins
Solid Waste Authority of Palm Beach, Florida (Solid Waste Authority)
Southeast Electricity Consumers Association (SeECA)
Southern California Edison Company (SCE)
Swecker, Gregory (Mr. Swecker)
Transmission Agency of Northern California (TANC)
TXU Energy, Power and Wholesale Companies (TXU)
U.S. Combined Heat & Power Association (USCHPA)
Utah Association of Energy Users (UAE)
Wisconsin Industrial Energy Group, Inc.
Xcel Energy Services Inc. (Xcel)

[FR Doc. 06-8928 Filed 10-31-06; 8:45 am]

BILLING CODE 6717-01-P
